1098s for Decedents

[Kea]

I'm working on 2 more decedent returns. Both of these received 1098s in name / SSN of decedent.

In the first case it was a simple matter of the client passing away while still paying a mortgage. I know the interest paid after DOD goes to Form 1041. My question is: how do I show moving it to 1041 on the 1040 Sch A?

2nd case is a reverse mortgage. Even though all interest was paid when the house was sold by the estate, the 1098 is reported in name / SSN of decedent. House was sold within a few months by the estate (no one else lived in the house after DOD). Can the revese mortgage interest also be moved to the 1041?

Or, do I not show them at all on the 1040? Just enter directly on the 1041 with lender name and decedent name as nominee?

Thanks

[jainen]

>>Can the revese mortgage interest also be moved to the 1041?<<

Yes, in fact it must be. On the final 1040 report only amounts paid prior to death; you don't need to explain why it is less than the 1098 amounts..Note that in both these situations the estate treats it as investment interest expense, not qualified home mortgage interest.

[Kea]

Thanks so much. So I can put it directly on the 1041 even though the SSN and EIN won't match? Should I / How would I put a note on the 1040 or 1041 to show why it's reported with a different EIN?

[jainen]

>>put a note on the 1040 or 1041 to show why it's reported with a different EIN<<

That's what the instructions for Schedule A say about claiming interest from someone else's 1098. But remember it is investment interest expense on the 1041, so it is only deductible to the extent of investment income. That probably makes a big difference with a reverse mortgage sold for the step-up FMV.

[Kea]

In regards to the client with the reverse mortgage: I finally got her K-1s, so I'm now finalizing this return.

I would like clarification. On 5/17/12, NATP addressed this question in their "You Make the Call" section. They said at in the case where the estate sells the house, the principal and interest of the reverse mortgage is reported on the estate tax return (Form 706) as a debt of the estate. However:

"It is not deductible on the estate’s Form 1041, because it is not an administrative expense of the estate. If taxpayers who acquire property subject to a liability from a decedent pay off the interest on a reverse mortgage after the borrower dies, they can claim the interest in the year that they pay it, as a “deduction in respect of a decedent” under §691( . But there are still limitations, as the amount of interest claimed as a deduction cannot exceed the interest paid on $100,000 of debt (the limit on the amount that can be considered home equity debt, which is how the IRS views reverse mortgage loans)."

Am I reading the NATP answer correctly that if the house is sold by the estate and reverse mortgage is paid off at that time, there is no deduction (estate valued at < $100,000)? Had the heirs transferred the title to their names prior to sale of house, they would have been able to deduct the interest subject to the limitations?

When I took the Final 1040 Webinar, I asked about deducting the reverse mortgage and they said it goes on the 1041. Is there a contridiction here, or am I missing some qualifier?

Thanks.