My wife sold an inherited house a few years back and took a mortgage back. Last year he found a better rate and refinanced. The bank asked what the payoff was on 11/30. The problem was that he never made the payment for November. I suggested the actual principal on 11/30 had he made the November payment, the November payment, and the penalty for failing to make a payment. The bank agreed and all was well.
Should we figure what the interest would have been on the November payment and consider that interest income? Is the penalty payment taxable? There is very little money involved, but I want to get it right.