Must/May we file a 1098?

Every year I reiterate to a client that he does not and indeed should not type out two form 1098's for interest on a mortgage he carries for property sold years ago, since he is not in the bidness of lending money. IRS doesn't want such clogging up their systems, and maybe some day he'll get the message.

When you have a choice, like this case, get rid of the paperwork!

ChEAr$, Harlan Lunsford, EA n LA

Of course, if he and his brother have a joint savings account and he got the 1099INT for $50, IRS says clearly he is to prepare and send his brother a 1099INT for $25.

Does IRS really know what they want?

I'm with Harlan on this one, but I want to make sure you understand the technicalities as well as the realities.

In general, reporting to the IRS on 1099s and 1098s and such is ONLY REQUIRED when you are in a TRADE OR BUSIENSS. Clearly your mother is NOT in the business of mortgage lending, so she has NO REQUIREMENT to file a 1098. The IRS doesn't really want a 1098 from your mother, but generally speaking they will accept it.

What hasn't been addressed is this:

Mom has to report the interest as income from a seller financed mortgage; AND the buyer gets to deduct it as mortgage interest on his return AND he discloses whom he paid it to - and he should be including mom's SSN.

Here's where it gets interesting - the IRS will MOST certainly cross check to see that what was claimed as a deduction by the buyer was reported as income by mom.

Most buyers (read that PAYORS of mortgage interest) neither track nor know how much of their payment is interest. Besides, you should make sure that the buyer and seller report the same numbers so as to avoid any love letters from the IRS.

SO - as a courtesy to the buyer, mom should prepare an INFORMATIONAL mortgage statement for the buyer if for no other reason than to make sure they both use the same numbers. It is also likely that IF she doesn't give the buyer such a statement they will be calling her to get one.

NOW - mom likely can't do the math herself and you don't seem to have all the info. BUT the CPA does. The CPA also has to weigh the time and cost associated with writing an informational letter to the buyer versus just preparing a 1098. Being in public accounting for over 25 years I can tell you that filling in the 1098 is faster (read that generally cheaper to the client) than writing a letter that contains the same information. It also avoids questions raised by the buyer. And keep in mind that there is NOTHING that says that AFTER the 1098 is prepared that the IRS copy actually has to be mailed.

My advice to you - which worth exactly what you're paying for it - would be to let the CPA continue to prep the 1098, mail a copy to the buyer, keep mom's copy in her records but DO NOT mail the IRS their copy.

Good luck, Gene E. Utterback, EA, RFC, ABA

Huh? Whose brother? I don't even know if he has a brother.

That, I take it, is a rhetorical question. (grin

ChEAr$, Harlan