Mortgage payments reported on Form 1098-MA

[FEDUKE404]

Client has received a Form 1098-MA from the state housing authority, showing mortgage interest payments in the amount of ~$14k made during 2015 toward mortgages owned by the client.

Due to a loss of employment, the mortgage assistance payments began in July and continue to this date.

The client has three separate mortgages. One of the three (other two "can't discuss") has stated that the mortgage interest as shown on the Form 1098 includes the payments from all sources, namely the homeowner AND the Housing Authority.

It appears the funds do NOT constitute taxable income. Can anyone confirm? (I think that's the easy question.)

The problem I'm having is what to report on line 10 of Schedule A as mortgage interest, especially since the Form 1098 is supposedly a matched document by the IRS.

One would think the only amount that could be claimed would be only the funds actually paid by the homeowner, but that may not be the case.

There may be a way, truly defying all tax logic, that the homeowner may deduct the full amounts shown on the respective Forms 1098 although less than 25% of those funds were actually paid by the homeowner.

And, to add to the confusion, there is a possibility the housing authority may have paid (escrowed) property taxes and other related stuff.

Sadly, the client is not being very forthcoming and/or just doesn't know what went on. . . . .

Has anyone encountered Form 1098-MA before, and if so what is the proper way to handle this scenario? ?

Thanks in advance.

FE

[David1980]

How much did taxpayer actually pay?

The mortgage assistance payments are not taxable to the taxpayer.

As far as the deduction on Schedule A line 10, you have to be careful not to deduct too much. The taxpayer can deduct mortgage interest that they pay. When there's a 1098-MA you know they did not pay all of their mortgage payments - the government paid some. Let's hypothetically say taxpayer paid all mortgage payments from January through June and the government paid all mortgage payments from July through December. You get a 1098 with some amount of mortgage interest on it, say $10,000. How much did the taxpayer pay? Well, you can't tell from that. Since the principal goes down over time the interest amount also goes down over time so the December payment will have less interest than the January payment. You would need to find out for each payment how much went to interest to determine how much total interest was paid by the taxpayer from January through June. Obviously that's pretty dang annoying.

With 1098-MA there's a safe harbor method you can use. You can deduct all of the mortgage interest shown on form 1098 up to the amount of payments the taxpayer actually made. So say taxpayer paid $6,000 from January - June and you have a 1098 showing $5,000 of mortgage interest. Your deduction is $5,000. If the 1098 was $10,000 your deduction would be $6,000. You just can't deduct more mortgage interest / real estate taxes / mortgage insurance premiums on Sch A than the total mortgage payments the taxpayer actually paid.

[FEDUKE404]

Figuring out the missing details

The mortgage assistance payments are not taxable to the taxpayer.

As far as the deduction on Schedule A line 10, you have to be careful not to deduct too much. The taxpayer can deduct mortgage interest that they pay. When there's a 1098-MA you know they did not pay all of their mortgage payments - the government paid some. Let's hypothetically say taxpayer paid all mortgage payments from January through June and the government paid all mortgage payments from July through December. You get a 1098 with some amount of mortgage interest on it, say $10,000. How much did the taxpayer pay? Well, you can't tell from that. Since the principal goes down over time the interest amount also goes down over time so the December payment will have less interest than the January payment. You would need to find out for each payment how much went to interest to determine how much total interest was paid by the taxpayer from January through June. Obviously that's pretty dang annoying.

With 1098-MA there's a safe harbor method you can use. You can deduct all of the mortgage interest shown on form 1098 up to the amount of payments the taxpayer actually made. So say taxpayer paid $6,000 from January - June and you have a 1098 showing $5,000 of mortgage interest. Your deduction is $5,000. If the 1098 was $10,000 your deduction would be $6,000. You just can't deduct more mortgage interest / real estate taxes / mortgage insurance premiums on Sch A than the total mortgage payments the taxpayer actually paid.

That's pretty much in line with what I've concluded. . .but it's the old "the devil's in the details."

The Form 1098-MA also shows six 2015 payments, each ~same amount, beginning in July. That is likely the "monthly payment." Somewhere in there is decreasing interest and increasing principal. Who knows about escrow. . .

FWIW: Box 1 "Total State HFA/HUD and homeowner mortgage payments" and Box 2 "State HFA/HUD mortgage assistance payments" on the Form 1098-MA show the identical dollar amounts. Can that lead to a reasonable conclusion that the homeowner paid NOTHING ? ? ? (Or just paid nothing from July onward?) Or are we back to dealing with what is shown on the three Forms 1098 and (separately) who paid the real property taxes?

Since we are dealing with three separate mortgages, the only way to resolve the amounts the client truly paid and can deduct would be to get a breakdown of all 2015 transactions for each account. Mortgage company will obviously put up a firewall if I ask for such info, and client can be . . .not highly motivated. Also, at the present time I have no knowledge of how many (early 2015) payments were NOT made due to dire financial straits of client.

I guess I'll just lob the ball into the clilent's court. . .and wait until the needed information appears.

Thanks for your helpful input!

FE

[taxea]

you or the TP need to go to the source and get the details.

[FEDUKE404]

Solution

you or the TP need to go to the source and get the details.

Thank you very much.

Can't imagine why I did not think of that. . . . .

FE