1099A and 1098

[ToledoEd]

Have a divorced client that moved out of home in 2012 and the mortgage payments were no longer made on the house. Both spouses moved out of the house. He just received the 1099A from where the lender acquired the house, along with a 1098 for the year 2014 showing Mortgage Interest paid in excess of 40,000, plus the current year RE Taxes.

I have not seen a 1098 like this before. Neither spouse has made any payments. Is the interest deductable? They did not make the payment, but they were legally liable to pay it. I assume that the lender had used cancellation of debt to clear the accumulated interest, but that is a guess.

Any ideas would be appreciated.

[ToledoEd]

Bumping to see if anyone would have any ideas about the deductability of the 1098. It looks like a win for the taxpayer, and other than the amount of 1098 interest showing up on a 1099C, what is the down side?

[TaxprepP]

It souds as though the 1098 may be or have an error. I myself have never seen such an amount on a 1098 for mortgage interest. It more sounds like a 1099C. 1099-A is more for informational purposes and taxpayer may still recieve a 1099-C later. I would doubel check on the 1098 amount. Pub 4681 gives information on cancellation of debt.

[David1980]

Was the FMV of the home sufficiently large enough to pay all the debt owed on the home? It could be that there was $40,000 of accumulated unpaid interest and the bank was able to sell the home for enough to pay it all.

[TAX4US]

I have a 1099-c with 53k of interest on it. Still scratching head as to what do I do with this thing?

[BHoffman]

You might do a search for the address in Zillow.com to see if, when, and how much the house sold for. It does sound very weird.