Tax Guru – Ker$tetter Letter

From a client:

One question.
We have a Personal Loan to an individual …..and
a first Home mortgage to my daughter.  Both loans are being amortized.  You will see our Quick Books and Organizer records “Interest Income”.
Do I issue 1098s?  FYI, I did not issue 1098s in 2011.

My Reply:

Since you aren’t in the lending business and these loans weren’t for properties you developed, you are not required to file 1098s.

However, I have some clients who voluntarily file 1098s even though they also aren’t required to do so in order to make sure everyone is using the same numbers on their tax returns.

If you don’t file 1098s for your loans, you should send your borrowers something showing what your records have for the prior year’s payments in terms of principal and interest so that they can use the same figures for their tax returns.

FYI – Here are the IRS’s official instructions for this.
http://www.irs.gov/instructions/i1098/ar02.html#d0e169

Who Must File

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 on any one mortgage during the calendar year. You are not required to file this form if the interest is not received in the course of your trade or business. For example, you hold the mortgage on your former personal residence. The buyer makes mortgage payments to you. You are not required to file Form 1098.

For information about who must file to report points, see Who must report points on page 3.
Not in the lending business.   If you receive mortgage interest of $600 or more in the course of your trade or business, you are subject to the requirement to file Form 1098, even if you are not in the business of lending money. For example, if you are a real estate developer and you provide financing to an individual to buy a home in your subdivision, and that home is security for the financing, you are subject to this reporting requirement. However, if you are a physician not engaged in any other business and you lend money to an individual to buy your home, you are not subject to this reporting requirement because you did not receive the interest in the course of your trade or business as a physician.

I hope this helps.  Let me know if you have any other questions.

Kerry