What to do about mortgage payments received?

My wife and her brother were left a house by their mother. They sold it and took back a mortgage. BIL wants to receive all payments and twice a year pay her half. Fine with me, but I want to do what the IRS will be happy with. What paperwork is required in this process? There is only $1,500 a year involved, so I suppose there will only be a few hundred in interest. Presumably I have to make up an amortization schedule to determine that, but what else?

Reply to
Troubled
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Maybe I asked the question poorly. We took back a mortgage and will have to pay taxes on the interest. Do I just enter $200 Interest from John Smith on my schedule B and let it go at that? Or is there more? What documentation do I need? Does it matter that my BIL wants to take all the checks and pay my wife half? Is the interest then from BIL or the mortgage holder?

Reply to
Troubled

Your post raises several issues. Perhaps the easiest is your question of whether the brother-in-law can receive all of the payments and semi-annually pay your wife her share. There is no reason why that can't be done and no forms are required. However, I see two potential issues:

First, from the buyer's point of view, if I buy property subject to a mortgage from Mary Smith and John Jones you can bet I'm going to make the payment checks out to Mary Smith and John Jones. While your wife and her brother may be very nice people and would never squabble over it, I don't know that and I'm going to protect my interest.

Secondly, this is a seller financed mortgage, so the IRS requires the buyer to place the seller's name and social security number on their tax return. Is your brother in law going to just provide his SSN (and have the IRS look to his return for all of the interest?) He could, but then he would need to nominee Form 1099-INT to your wife.

Yes, you would need an amortization schedule. However, you should have one that you and the buyer and your wife's brother agree on, as what your wife and her brother report should equal what the buyer claims as a deduction.

Reply to
adjunct

Thanks. That is helpful. I got the amortization schedule. There is $15,000 interest over 15 years; she gets half. Whoopie!

Reply to
Troubled

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