Taxpayer has a home mortgage negative amorization loan with a 1098 showing interest paid of $51,507. Beginning principal in 2006 was $658,427.18 and ending balance was $680,438.09, the difference of $22,010.91 being the unpaid interest added onto loan. However, taxpayer refinanced in December of 2006. My question is would the total $51,507 interest be deductible being the interest was paid through the refi? These mortgage loans are getting far too confusing to track...... Also, would the $22,010.91 of interest that rolled into new loan be considered equity or acquistion debt?
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My understanding is that the amount that was refinanced up to the paid off principal balance would be refi debt. Anything in excess would be equity debt. On the amount rolled into the new loan, I believe that would be equity debt. You are correct. This seems to be getting more complicated. -
Option ARM Loans
I think that is what they are called, where the client has the option to pay 1 of 3 or 4 loan payment amounts. If they pay one of the lesser amounts then the negative amount is added to the balance, negative amortization.
Your 1098 form probably also includes a prepayment penalty, as well as the interest that was paid in the current year, plus the negative amortization that was paid off on the refinance.
Good question on how to treat the added amount to principle. I have a return that has 4 different mortgages on 4 different rental properties that were sold in 2006, so I don't have to worry about the acquistion/equity problem. The interest amount is "HUGE" including all of the prepayment penalties, I was provided a breakdown between interest and prepayment penalties and principle amount on the payoff.
Wouldn't all of the interest be deductible in the year paid, such as refinance, the client could not have taken it in a prior year, as it was added to the principle amount.
SandyLast edited by S T; 03-16-2007, 03:10 AM.Comment
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