I have a client that was in an interest only loan for her home. She did not realize she was in that type of a loan for 3 yrs. When she did find out she had it changed. She received a Mortgage Assistance Payment 1098MA. I searched all over and asked people all over. I'm not sure where this needs to go. I was told maybe fill out the Form 982 for discharge of residence. I also, read in The Tax Institute Book that it is generally tax free. But, where does it go to be claimed on their taxes and is it tax free?
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Form 1098MA is received when they had some kind of government assistance. Basically the government made some of the mortgage payments.
This isn't cancellation of debt so 982 wouldn't apply. The form itself in the instructions for homeowner explains what it means for the tax return in "Safe-harbor deduction computation" but it can be a little hard to understand.
Let's see if I can make it simpler?
So most of the time when we get a taxpayer that has a 1098 we just enter the mortgage interest on Sch A line 10 and the real estate taxes on line 6. Taxpayers are allowed a deduction for mortgage interest and real estate taxes that they pay. And most of the time that's the amount on the 1098.
But when you get government assistance involved, you have to consider whether they really paid the amounts shown on the 1098. At the extreme, let's say the taxpayer did not make a single mortgage payment that year and that the entirety of their mortgage interest and real estate taxes was paid by a government program. Well, since they can deduct the amount they paid they can deduct $0. Simple.
It gets more complicated when both taxpayer and government made some of the mortgage payments and that's the normal scenario when you get that 1098MA. Let's say government made first 4 months payments and taxpayer made the last 8 months payments. Or they each made part of some payments. To determine the amounts the taxpayer paid you would have to look at what the interest and real estate taxes were for each individual month payment and how much of that payment was made by the taxpayer. Burdensome!
That's where the safe harbor comes in. Basically, the taxpayer can deduct all of the mortgage interest and real estate taxes up to the amount of payments that the taxpayer actually made for the year. So if taxpayer made $5,000 in payments and the total mortgage interest + real estate taxes is $6,000 you can deduct $5,000. If the total payments were $7,000 you could deduct $6,000. So you don't have to manually figure the interest and tax amounts for each individual payment.
You do need to find out how much the payments made by the taxpayer were though. -
Oh and yes, that's correct. The amounts the government paid don't get picked up in income. So it can reduce the mortgage/interest they can deduct from the 1098 but otherwise it doesn't go anywhere on the return. Like other general welfare programs the payments aren't taxable.Originally posted by trinitymorris View PostComment
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Mortgage Assistance Pyamnets 1098MA
Ok. I will get in contact with the client and find out.
Thank you for your help. I greatly appreciate it
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