RECOMMENDATION 01070-001
RECOMMENDATION TEXT:
Recommended Text; Include a check box to indicate the mortgage interest is a home equity loan or a line of credit. Justification: Taxpayers are allowed to deduct mortgage interest on certain home equity loans. The check box will allow tax return preparers to know whether the mortgage interest is deductible and whether to ask more questions about the use of the home equity and line of credit advances.
IRS Action: Recommended
RECOMMENDATION 01070-002
RECOMMENDATION TEXT:
Recommended Text: Include a box for the outstanding mortgage balance at the end of the year. Justification: Taxpayers need to know their outstanding balance at the end of the year to properly calculate the mortgage interest deduction if it exceeds the mortgage balance limitation for deductibility.
IRS Action: Recommended
RECOMMENDATION 01070-003
RECOMMENDATION TEXT:
Recommended Text: Add a box for real estate taxes. Reduce the size of box 8 and include a box 12 and label real estate taxes. Justification: Requiring a box to report real estate taxes assists the taxpayer and tax return preparer in knowing the amount reportable on Schedules A or E as a deduction. It also assists the IRS with possible compliance checks. Providing the real estate taxes paid is currently optional and may be reported in box 10.
IRS Action: Recommended
RECOMMENDATION 01070-004
RECOMMENDATION TEXT:
Current Text: See the instructions for Schedule A, C, or E (Form 1040) for how to report the mortgage interest. Also, for more information, see Pub. 936 and Pub. 535. Recommended Text: See the instructions for Form 1098, Schedule A, C, or E (Form 1040) for how to report the mortgage interest. Justification: The instructions to Form 1098 should include the information the taxpayer needs to determine the amount of mortgage interest to report. Including the information in Form 1098 instructions will reduce the amount of time the taxpayer spends looking for the answer. These changes would conform to the Taxpayer Bill of Rights “Right to Be Informed.”
IRS Action: Recommended
RECOMMENDATION 01070-005
RECOMMENDATION TEXT:
Recommended Text: Add a line for the amount of prepaid interest included in box 1. Justification: Taxpayers and tax return preparers rely on the information reported on Form 1098 when completing Schedule A. It is not apparent from the form if the taxpayer should not be deducting some of the interest reported in Box 1, which may represent prepaid interest. This will improve taxpayer compliance.
IRS Action: Recommended
RECOMMENDATION 01070-006
RECOMMENDATION TEXT:
Recommended Text: As an alternative to recommendation above #3560, change box 1 to the amount of mortgage interest allowable in the year, which would exclude prepaid interest. Justification: To simplify the reporting for the taxpayer and to improve taxpayer compliance.
IRS Action: Recommended
RECOMMENDATION 01070-007
RECOMMENDATION TEXT:
Current Text: See the calendar year Schedule A (Form 1040) instructions and Pub. 936 Recommended Text: See Form 1098 instructions and Pub. 936. Include the hyperlink to Publication 936. About Publication 936, Home Mortgage Interest Deduction | Internal Revenue Service Justification: The instructions to Form 1098 should include the information the taxpayer needs to determine if the mortgage insurance premiums are deductible as mortgage interest. Including this information will reduce the amount of time the taxpayer spends looking for the answer.
IRS Action: Recommended
RECOMMENDATION 01070-008
RECOMMENDATION TEXT:
Current Text: See Pub. 936 to figure the amount you can deduct. Recommended Text: See Form 1098 instructions and Pub. 936 to calculate the amount you can deduct. Justification: The instructions to Form 1098 should include the information the taxpayer needs to know to determine the deductible amount of points. Including the information in Form 1098, instructions will reduce the time the taxpayer spends looking for the answer.
IRS Action: Recommended
RECOMMENDATION 01070-009
RECOMMENDATION TEXT:
Current Text: Also use Form 1098 to report mortgage insurance premiums (MIP) of $600 or more you received during the calendar year in the course of your trade or business from an individual, including a sole proprietor, but only if section 163(h)(3)(E) applies. Recommended Text: Also use Form 1098 to report mortgage insurance premiums (MIP) of $600 or more you received during the calendar year in the course of your trade or business from an individual, including a sole proprietor and a single member LLC treated as an individual/sole proprietor, but only if the premiums were paid or accrued on mortgage insurance contracts issued after January 1, 2007 for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer. (See section 163(h)(3)(E) for more information and background if desired). Justification: Adding language from the general provisions of 163(h)(3)(E) helps the taxpayer determine when the information must be reported. Including the reference to a single member LLC disregarded entity treated as an individual/sole proprietor should be reported. Form W- 9 received by the lender will have identified whether the single-member LLC was treated as an individual/sole proprietor.
IRS Action: Recommended
RECOMMENDATION 01070-010
RECOMMENDATION TEXT:
Current Text: Use the Obligation Classification Table to determine which obligations are mortgages. Recommended Text: Use the Obligation Classification Table on Page 1 to determine which obligations are mortgages. Justification: The table is not right after the discussion of mortgages, so drawing the reader’s attention directly to its location would be very helpful.
IRS Action: Recommended
RECOMMENDATION 01070-011
RECOMMENDATION TEXT:
Current Text: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 (or $600 or more of MIP, if section 163(h)(3)(E) applies for the reporting year) on any one mortgage during the calendar year. Recommended Text: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 (or $600 or more of MIP, if the premiums were paid or accrued on mortgage insurance contracts issued after January 1, 2007 for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer applies for the reporting year) on any one mortgage during the calendar year. (See section 163(h)(3)(E) for more information and background if desired). Justification: Adding language from the general provisions of 163(h)(3)(E) helps the taxpayer determine when the information must be reported.
IRS Action: Recommended
RECOMMENDATION 01070-012
RECOMMENDATION TEXT:
Current Text: A cooperative housing corporation is an interest recipient and must file Form 1098 to report an amount received from its tenant-stockholders that represents the tenant- stockholders’ proportionate share of interest described in section 216(a)(2). Recommended Text: A cooperative housing corporation is an interest recipient and must file Form 1098 to report an amount received from its tenant-stockholders that represents the tenant- stockholders’ proportionate share of interest incurred (A) in the acquisition, construction, alteration, rehabilitation, or maintenance of the houses or apartment building, or (B) in the acquisition of the land on which the houses (or apartment building) are situated. (See section 216(a)(2) for more information and background if desired). Justification: Adding language and providing the general provisions of 216(a)(2) helps the taxpayer determine when the information must be reported.
IRS Action: Recommended
RECOMMENDATION 01070-013
RECOMMENDATION TEXT:
Current Text:If the interest is paid within the United States, you must request from the payer the applicable Form W-8 (withholding certificate) as described in Regulations section 1.1441-1(e)(1). Recommended Text: Update the reference to 1.1441-1(e)(1). Justification: Review of the regulation, there was no (e)(1). It would be helpful to the taxpayer to know the applicable regulation that applies.
IRS Action: Recommended
RECOMMENDATION 01070-014
RECOMMENDATION TEXT:
Recommended Text: Have the issuer of the 1098 provide the deductible amount of interest to take into consideration the exception below: Exception. Interest received during the current year that will properly accrue in full by January 15 of the following year may be considered received in the current year, at your option, and is reportable on Form 1098 for the current year. However, if any part of an interest payment accrues after January 15, then only the amount that properly accrues by December 31 of the current year is reportable on Form 1098 for the current year. For example, if you receive a payment of interest that accrues for the period December 20 through January 20, you cannot report any of the interest that accrues after December 31 for the current year. You must report the interest that accrues after December 31 on Form 1098 for the following year. Justification: Provide the taxpayer with the proper amount of interest to be deducted on their tax return and to provide the IRS information whether the deduction is accurate.
IRS Action: Recommended
RECOMMENDATION 01070-015
RECOMMENDATION TEXT:
Recommended Text: If previous recommendations are not accepted, please consider eliminating the exception and the following: Do not include government subsidy payments, seller payments, or prepaid interest that does not meet the exception explained under Prepaid Interest, earlier. Interest includes prepayment penalties and late charges. Justification: For simplification.
IRS Action: Recommended
RECOMMENDATION 01070-016
RECOMMENDATION TEXT:
Recommended Text: Add a TIP: The general instructions are available at General Instructions for Certain Information Returns, IRS.gov/1099General Instructions, or IRS.gov/Form1098. Add the hyperlinks About General Instructions for Certain Information Returns | Internal Revenue Service (irs.gov) About Form 1098, Mortgage Interest Statement | Internal Revenue Service (irs.gov) Justification: Provide clearer directions on how to find information. Adding the link will help the taxpayer access the information more quickly.
IRS Action: Recommended
RECOMMENDATION 01070-017
RECOMMENDATION TEXT:
Current Text: See Part L in the General Instructions for certain information returns. Recommended Text: Remove: See Part L in the General Instructions for certain information returns. Add: Use the account number or policy number box on Forms 1098 for an account number designation. The account number is required if you have multiple accounts for a recipient for whom you are filing more than one information return of the same type. The account number is also required if you are an FFI making the election described in Regulations section 1.1471-4(d)(5)(i)(A) or (B) or are a U.S. payer reporting as described in Regulations section 1.1471-4(d)(2)(iii)(A). Additionally, the IRS encourages you to include the recipient’s account number on paper forms if your system of records uses the account number rather than the name or TIN for identification purposes. Also, the IRS will include the account number in future notices to you about backup withholding. See Pub. 1220 if you are e-filing. The account number may be a checking account number, savings account number, brokerage account number, serial number, loan number, policy number, or any other number you assign to the payee that is unique and will distinguish the specific account. This number must not appear anywhere else on the form, and this box may not be used for any other item unless the separate instructions indicate otherwise. Using unique account numbers ensures that corrected information returns will be processed accurately. If you are using window envelopes to mail statements to recipients and using reduced rate mail, be sure the account number does not appear in the window. The U.S. Postal Service may not accept these for reduced rate mail. Justification: This recommendation makes it on easier on the taxpayer to find relevant information. Lessen the time burden on the taxpayer to comply.
IRS Action: Recommended
RECOMMENDATION 01070-018
RECOMMENDATION TEXT:
Current Text: To see if the applicability of this provision has been extended, and therefore reporting is required, go to IRS.gov/Form1098. Recommended Text: Update the link to the actual location on the IRS website. Justification: Update the link to the actual location on the IRS website, it currently does not direct taxpayers to the provisions. Clicking the link will take you to the general instructions for Form 1098. Making it on easier on the taxpayer to find relevant information and lessening the time burden on the taxpayer.
IRS Action: Recommended
RECOMMENDATION 01070-019
RECOMMENDATION TEXT:
Current Text: If section 163(h)(3)(E) applies for the tax year being reported, enter the total premiums of $600 or more paid (received) for the tax year being reported, including prepaid premiums, for qualified mortgage insurance. Recommended Text: If the premiums were paid or accrued on mortgage insurance contracts issued after January 1, 2007 for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer, enter the total premiums of $600 or more paid (received) for the tax year being reported, including prepaid premiums, for qualified mortgage insurance. (See section 163(h)(3)(E) for more information and background if desired). Justification: Adding language and providing the general provisions of section 163(h)(3)(E) reduces the time burden on the taxpayer to determine the proper deduction while still providing the code section for people who want more information.
IRS Action: Recommended
RECOMMENDATION 01070-020
RECOMMENDATION TEXT:
Recommended Text: Add: You may include the following information in Box 10 For loans to purchase or improve a residence that is not the payer of record’s principal residence, such as a second home, vacation, investment, or trade or business property, For refinancing(see Construction loans, later), including a loan to refinance a debt owed by the borrower under a land contract, a contract for deed, or similar forms of seller financing. Justification: Taxpayers may be entitled to amortize the points and deduct them on Schedule A. Providing the information in box 10 assists the taxpayer in paying only the required amount of tax.
IRS Action: Recommended
RECOMMENDATION 01070-021
RECOMMENDATION TEXT:
Recommended Text: Add: Capitalization of Interest Under the uniform capitalization rules, you must generally capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. The property must be produced by you for use in your trade or business or for sale to customers. You cannot capitalize interest related to property that you acquire in any other manner. Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. Designated property is any of the following: • Real property. • Tangible personal property with a class life of 20 years or more. • Tangible personal property with an estimated production period of more than 2 years. • Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. Property you produce. You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. Carrying charges. Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. For more information, see chapter 7. Capitalized interest. Treat capitalized interest as a cost of the property produced. You recover your interest when you sell or use the property. If the property is inventory, recover capitalized interest through cost of goods sold. If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. Additional information. The procedures for applying the uniform capitalization rules are beyond the scope of this publication. For more information, see Regulations sections 1.263A-8 through 1.263A-15 and Notice 88-99, which is in Cumulative Bulletin 1988-2. Justification: Make the taxpayer aware there are times interest expense reported on the 1098 are not currently deductible. The language is consistent with Publication 535 regarding mortgage interest.
IRS Action: Recommended
RECOMMENDATION 01070-022
RECOMMENDATION TEXT:
Recommended Text: Add TIP: Rather than deducting the interest currently you may have to add of the cost basis of the property as explained earlier under Capitalization of Interest. Justification: Make the taxpayer aware there are times interest expense reported on the 1098 are not currently deductible. The tip is consistent with Publication 535 regarding mortgage interest.
IRS Action: Recommended
RECOMMENDATION 01070-023
RECOMMENDATION TEXT:
Recommended Text: Add TIP: Interest paid with funds borrowed from original lender. If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. You can deduct the interest expense once you start making payments on the new loan. When you make a payment on the new loan, you first apply the payment to interest and then to the principal. All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. Justification: The language is consistent with Publication 535 regarding mortgage interest.
IRS Action: Recommended
RECOMMENDATION 01070-024
RECOMMENDATION TEXT:
Recommended Text: Add: Mortgage insurance premiums. The itemized deduction for mortgage insurance premiums has expired. You can no longer claim the deduction. Home equity loan interest. No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds were not used to buy, build, or substantially improve your home. Home mortgage interest. You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017. Justification: The language is consistent with Publication 936 regarding mortgage interest.
IRS Action: Recommended
RECOMMENDATION 01070-025
RECOMMENDATION TEXT:
Recommended Text: Add: Refer to Publication 936 Home Mortgage Interest Deduction for more information on the home mortgage interest deduction and points to include when points are allowed as a deduction in the current year or amortized over the life of the loan, for home improvement loans, second homes, and refinancings. The publication also provides information regarding the mortgage interest deduction when mortgage proceeds are used for business or investment. General Rule: You generally cannot deduct the full amount of points in the year paid. Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. See Deduction Allowed Ratably next. If the loan is a home equity, line of credit, or credit card loan and the proceeds from the loan are not used to buy, build, or substantially improve the home, the points are not deductible. For exceptions to the general rule, see deduction Allowed in Year Paid, later. Deduction Allowed Ratably If you don’t meet the tests listed under Deduction Allowed in Year Paid, later, the loan isn’t a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all of the following tests. 1. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them. Most individuals use this method. 2. Your loan is secured by a home. (The home doesn’t need to be your main home.) 3. Your loan period isn’t more than 30 years. 4. If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid.) 1. Your loan is secured by your main home. (Your main home is the one you ordinarily live in most of the time.) 2. Paying points is an established business practice in the area where the loan was made. 3. The points paid weren’t more than the points generally charged in that area. 4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them. Most individuals use this method. 5. The points were not paid in place of amounts that are ordinarily stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. 6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided are not required to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. You can’t have borrowed these funds from your lender or mortgage broker. 7. You use your loan to buy or build your main home. 8. The points were figured as a percentage of the principal amount of the mortgage. 9. The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller’s. Note. If you meet all of these tests, you can choose to either fully deduct the points in the year paid or deduct them over the life of the loan. Justification: The language is consistent with Publication 936 regarding mortgage interest.
IRS Action: Recommended
RECOMMENDATION 01070-026
RECOMMENDATION TEXT:
Recommended Text: Add: Points to acquire a principal residence to the extent the points are allocable to an amount of principal in excess of the amount treated as acquisition indebtedness are not reported on Form 1098. Generally, the amount treated as acquisition indebtedness cannot exceed $750,000, but it may be up to $1 million if the borrower entered into a written binding contract before December 15, 2017, to close on the purchase before January 1, 2018, and purchased the residence before April 1, 2018 (the “written binding contract exception”). Your mortgage interest deduction may be higher than the amount reported on Form 1098. Your mortgage interest may be deductible on Schedule C Profit or Loss From Business, Schedule E Supplemental Income and Loss and Schedule A Itemized deductions. Justification: Adding language reduces misinterpretations and taxpayer burden. It provides guidance on deductions across multiple schedules by ensuring accurate mortgage interest deduction claims. It also enhances clarity on points and acquisition indebtedness limits.