Seller Financed Note Holders - Dont Forget January Tax Filings

As the end of the year approaches, there are a few tax filing deadlines in January that affect many people who hold mortgage notes.

Even though the tax deadline is April 15th, don't be caught unaware of filings required for Form 1098 - Mortgage Interest Statement.

This very basic primer of information on Form 1098 may assist a mortgage note holder in identifying potential filing requirements.

1 Form 1098 - Mortgage Interest Statement

Federal law requires that mortgage holders use Form 1098, to report mortgage interest of $600 or more received during the year in the course of their trade or business from an individual, including a sole proprietor. The $600 threshold applies separately to each mortgage; requiring a separate Form 1098 for each mortgage.

2 Filing Deadlines

The appropriate form is prepared for each reportable party and sent to the IRS with a duplicate form sent to the individual payee. In addition, prepare and file a Form 1096 summarizing all the information filed on Form 1098. Each of these forms are due to the IRS by February 28 of each year for the prior calendar year. A copy of Form 1098 must also be sent to the recipient of the payment by January 31.

3 Penalties

Be aware that there are stiff IRS penalties for not filing Form 1098. There can be a penalty for failure to obtain an appropriate tax identification number and/or filing late to a payee, as well as for not filing a copy with the IRS. The mortgage holder should obtain competent professional tax advice to determine whether they are or are not receiving mortgage interest incident to a trade or business.

4 Exemptions

Some mortgage holders may not be required to file this form if the interest is not received in the course of their trade or business. For example, a mortgage holder not engaged in any other business, lent money to an individual to buy the mortgage holders personal home. That mortgage holder may not be subject to this reporting requirement because they did not receive the interest in the course of their trade or business. Review individual specific situations with a competent tax professional.

If the services of a collection agent or servicing company are utilized to collect interest payments, chances are the that collection agency or servicing company will file Form 1098. Double check that this is being properly handled.

Summary

This general basic overview is presented with the understanding that the author is not engaged in rendering legal, accounting, taxation or other professional services. If legal or other expert assistance is needed, the services of a competent professional person should be secured. Free tax publications and forms can be obtained by contacting the IRS at 800-829-3676 or better yet, download the information and forms from the IRS website at www.irs.gov

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