Nominee Distribution ???? 1098 & 1099INT on same tranaction

[PIGLEEJAN]

Seller sold a home to the buyer and the note was handled thru Loan Care Account Servicing. The Seller did not have enough money to pay off their original loan, but they found an investor to put in some money to close the deal. The buyer pays the full monthly payment to Loan Care. The Loan care takes out enough money to pay the investor, pays the investor and sends the balance to the seller.

Loan care at the end of the year sends the seller a 1098 Mortage interest statement for the full amount of the loan. Then Loan Care also sends the seller a 1099-INT to the seller for the amount of interest paid to the Investor.

How do I report these two statements on the tax return?

OPTION 1 1099INT goes on Schedule B and the 1098 goes on the Schedule A. This is how it has been done in the past, but this year the client does not have enough to Itemize on Schedule A.


OPTION 2 Report the 1099 INT on the Schedule B, and then put the 1098 on the Schedule B as a Nominee distribution. This seems like the fair way to do it.

I am interested in how you would report this. Looking forward to your input.

Thank YOu.

[Rapid Robert]

Seller sold a home to the buyer and the note was handled thru Loan Care Account Servicing. The Seller did not have enough money to pay off their original loan, but they found an investor to put in some money to close the deal. The buyer pays the full monthly payment to Loan Care. The Loan care takes out enough money to pay the investor, pays the investor and sends the balance to the seller.

Loan care at the end of the year sends the seller a 1098 Mortage interest statement for the full amount of the loan. Then Loan Care also sends the seller a 1099-INT to the seller for the amount of interest paid to the Investor.

I spent a few minutes trying to understand this transaction, and couldn't quite get it all in perspective. Are you sure this isn't an installment sale? If the seller does not own the property which secures the loan, then how does he have any deductible mortgage interest on Schedule A?

You start out by saying it was a short sale "The Seller did not have enough money to pay off their original loan", which is pretty much the definition of a short sale. Or, to be more specific, in a short sale, the lender forgives some debt, and the borrower has COD income. So, where is the income to the seller for the "forgiven" loan debt being recognized? This is why I ask if it isn't really an installment sale.

OK, let's make up some numbers:

Property owned by "Seller":

FMV: $500K
outstanding mortgage balance: $550K

Investment by "investor": $50K

This is where I get stuck. How much did "Loan Care" lend, and to whom? If the buyer is buying a property worth $500K, are you saying they are making mortgage payments to Loan Care as if they had borrowed $550K?

[Burke]

Sounds like a wrap-around mortgage with a 3rd party involved who collects the mortgage payments from the buyer, then distributes to the seller who is still on the hook for the mortgage . I am a little confused as to why the 1099-INT goes to the seller instead of the "investor." Is the investor not receiving the interest?

[Burke]

OPTION 2 Report the 1099 INT on the Schedule B, and then put the 1098 on the Schedule B as a Nominee distribution. This seems like the fair way to do it. I am interested in how you would report this. Looking forward to your input. Thank YOu.

I cannot see any circumstance where the 1098 would go on the Schedule B as a Nominee distribution. Nominee to whom? If the TP cannot itemize using the mortgage interest, then that is unfortunate, but apparently the standard deduction is more than Schedule A. Happens a lot. IF you meant should the 1099INT go on Sche B and then deducted as nominee interest, I would be inclined to agree just for matching purposes. The "investor" is the one who should report the interest which he receives on his $50K investment. And the Loan Care people should be informed to correct their procedures.

[PIGLEEJAN]

More information

Seller sold a home to the buyer and the note was handled thru Loan Care Account Servicing. The Seller did not have enough money to pay off their original loan, but they found an investor to put in some money to close the deal. The buyer pays the full monthly payment to Loan Care. The Loan care takes out enough money to pay the investor, pays the investor and sends the balance to the seller.

Loan care at the end of the year sends the seller a 1098 Mortage interest statement for the full amount of the loan. Then Loan Care also sends the seller a 1099-INT to the seller for the amount of interest paid to the Investor.

How do I report these two statements on the tax return?

OPTION 1 1099INT goes on Schedule B and the 1098 goes on the Schedule A. This is how it has been done in the past, but this year the client does not have enough to Itemize on Schedule A.


OPTION 2 Report the 1099 INT on the Schedule B, and then put the 1098 on the Schedule B as a Nominee distribution. This seems like the fair way to do it.

I am interested in how you would report this. Looking forward to your input.

Thank YOu.

Thanks for your responses.

Yes it is a wrap, and it is an installment sale. Loan Care is a company that handles seller, mortgage loans.