2016 Federal Tax Reporting for Mortgage Interest

Transcription

1 2016 Federal Tax Reporting for Mortgage Interest

2 This analysis is provided for informational purposes only and should not be considered as legal or accounting advice. The examples shown cannot and do not address the unique facts and circumstances of your specific situation. We make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information contained in this document. You may wish to share this information with whomever prepares your tax return for their evaluation and use. CYCLIS Funding Group strongly urges you to rely upon the advice of your own real estate professionals, lawyers, and accountants.

3

4 Tax Identification Numbers The Lender must provide the Lender s Taxpayer Identification Number (TIN) to the Borrower. The Borrower must provide the Borrower s TIN, which is normally his Social Security Number (SSN), to the Lender. Each party should use a W9 Form to request this information from each other. Failure to report a TIN can result in a $50 fine each year.

5 Calculation of Annual Interest Income If there is not an actual payment schedule detailing both the interest paid and the principal reduction for each payment made during the year, consult the original amortization schedule for the loan. If the Borrower delivered the payments in full and on time, the total interest for the year should be correct. Note: If the total mortgage interest amount is less than $600, the total amount is exempt from filing.

6 Who Must File a Form 1098 File a 1098 if the Lender is engaged in a trade or business and, in the course of such trade or business, the Lender receives from an individual $600 or more of mortgage interest (or $600 or more of MIP, if section 163(h)(3)(E) applies for 2017) on any one mortgage during the calendar year. The Lender are not required to file this form if the interest is not received in the course of the Lender s trade or business. For example, the Lender holds the mortgage on the Lender s former personal residence. The buyer makes mortgage payments to the Lender. The Lender are not required to file Form If the Lender received mortgage interest of $600 or more in the course of the Lender s trade or business, the Lender is subject to the requirement to file Form 1098, even if the Lender is not in the business of lending money. For example, if the Lender is a real estate developer and the Lender provides financing to an individual to buy a home in the Lender s subdivision, and that home is security for the financing, the Lender is subject to this reporting requirement. However, if the Lender is a physician not engaged in any other business and the Lender lends money to an individual to buy the Lender s home, the Lender is not subject to this reporting requirement because the Lender did not receive the interest in the course of the Lender s trade or business as a physician.

7 Lender s Tax Return When Lender is exempt from IRS Form 1098 Lenders are exempt from Form 1098 reporting if the interest income is not paid to a lending business or if their prior personal residence secures the associated loan. Report interest income on Schedule B of the tax return. Enter the amount of interest on the first line of Part I, with the Name of the Borrower, Address of the Borrower, and Social Security Number of the Borrower

8 Enter all mortgage interest payments received during the year and total them on line 4 of Schedule B.

9 Transfer the total amount on line 4 to line 8A of either Form 1040 or Form 1040A.

10 When the Lender must file IRS Form 1098 If the lender has collected more than $600 of mortgage interest and either deposited the payments in a business entity or the payments were not associated with his prior personal residence, then the lender must file a IRS Form 1098 with both the IRS and the Borrower.

11

12

13 New fields: (2) Outstanding Mortgage Principal as of 01/01/16 (3) Mortgage Origination Date (5) Mortgage Insurance Premiums (7) Address same as Borrower s Address? (8) Address of property securing mortgage (9) Description of Property if no address for (8)

14 Deadlines to File Form 1098 for Tax Year 2016 Copy A: IRS File electronically by March 31, 2017 Otherwise file by February 28, 2017 Copy B: Borrower Send to Borrower by January 31, 2017 Copy C: Lender File with annual records