Mortgage Interest

Technical topics regarding tax preparation.
#1
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Have a family partnership that loaned one of the partners some money to purchase his primary residence. Told them they had to imput interest and pick it up as income since the loan was significant.

Now couple of years later, the partner paid off the loan to the partnership and asked if he could take a mortgage interest deduction. Even though he is not my client, I thought I should at least give him some guidance other than see your preparer as I'm afraid one of the partners who is my client will do the same. If they do report the interest paid as mortgage interest, would the partnership be required to file a Form 1098?
 

#2
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Was there a security interest in the residence given as collateral to secure the loan? Last time I helped some family members do a huge intra-family home-acquisition loan it was all done on a handshake. Not a good idea... :(
 

#3
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According to somebody's website:
"Lend and loan refer to similar concepts, but they are different parts of speech. Lend is a verb. Loan is a noun. Although loan sometimes appears as a verb, too, this usage is not yet fully accepted."

I'm left wondering what that "not yet" in there is supposed to mean... :roll:
 

#4
makbo  
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Spell Czech wrote:According to somebody's website:
"Lend and loan refer to similar concepts, but they are different parts of speech. Lend is a verb. Loan is a noun.

Consult a more authoritative web site, in this case, Merriam-Webster:

"Loan vs. Lend: Usage Guide
The verb loan is one of the words English settlers brought to America and continued to use after it had died out in Britain. Its use was soon noticed by British visitors and somewhat later by the New England literati, who considered it a bit provincial. It was flatly declared wrong in 1870 by a popular commentator, who based his objection on etymology. A later scholar showed that the commentator was ignorant of Old English and thus unsound in his objection, but by then it was too late, as the condemnation had been picked up by many other commentators. Although a surprising number of critics still voice objections, loan is entirely standard as a verb. You should note that it is used only literally; lend is the verb used for figurative expressions, such as "lending a hand" or "lending enchantment." "


Or, this web site, which doesn't even recognize that there might be an issue.

Spell Czech wrote:I'm left wondering what that "not yet" in there is supposed to mean... :roll:

It means, the trend is toward full acceptance in the foreseeable future. It's partly a matter of which gets more weight: Grammarly, or retired guys in internet discussion forums. :x
Last edited by makbo on 24-Aug-2019 4:06pm, edited 1 time in total.
 

#5
Joan TB  
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From the instructions for Form 1098: "File this form if you are engaged in a trade or business and, in the course of such trade or business, you receive from an individual $600 or more of mortgage interest. ... You are not required to file this form if the interest is not received in the course of your trade or business."

Sounds like mortgage lending is not part of the partnership's trade or business, This is also why someone who sells their home via owner-financing does not file Form 1098. However, as Spell Czech pointed out, there are requirements that must be in place to make this loan "qualified mortgage interest". Odds are, they didn't do all the steps.
 

#6
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Told them they had to imput interest and pick it up as income since the loan was significant.

If you just imputed the interest, isn’t there a bunch of deemed stuff going on…at the time of imputation?
 

#7
Joan TB  
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Your client picking up interest income (imputed interest) still doesn't necessarily mean the interest expense to the Partner is deductible mortgage interest. Is that really your question? Or is your question about the treatment of the (imputed) interest income on the partnership?

The way I see it, the partnership would not file Form 1098 regardless of what the partner claims on his tax return about the interest expense.
 


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