mircpa Posted March 26, 2008 Report Share Posted March 26, 2008 I have a client whose AGI is 78K, and Schedule A total is 81K, that includes interest & property taxes (principal home), High interest is because of reverse amortization of home loan and eventually transfer from one lender to another (This is what has been told to my client from old lender). My question does this looks odd to anybody, please share your thoughts thanks Quote Link to comment Share on other sites More sharing options...
michaelmars Posted March 26, 2008 Report Share Posted March 26, 2008 not to me but then again most of my clients are in real estate with negative agi Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 26, 2008 Report Share Posted March 26, 2008 Yes it looks funny on the surface. The question is, how did she get the money to pay the deductible expenses and all of her other non-deductible expenses? If a reverse mortgage explains it sufficiently for you (no opinion on this because you did not give enough figures to make one) then tell the client to document the facts in case of a future audit. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
jainen Posted March 26, 2008 Report Share Posted March 26, 2008 >>it looks funny on the surface<< Not just on the surface. The few numbers you give are not possible by themselves, and a tax preparer is required to reconcile such a discrepancy. It's entirely possible, of course, that the client is drawing from investments or has non-taxable income, but I wouldn't assume that without at least asking how he pays his bills. Neg-am or not, he convinced a bank that his income was substantial enough to support a very big house, with all the maintenance and utilities that implies. And you don't usually find Freddy the Freeloader in digs like that, so he is probably flashing a whole lifestyle to go along with it. Quote Link to comment Share on other sites More sharing options...
mircpa Posted March 26, 2008 Author Report Share Posted March 26, 2008 jainen There is no under stating of income from client's side, any way he is making an effort to dig deep and find out what is real story, i know he was telling me, he got loan transferred from previous lender to current lender, all the points and interest got transferred to new lender, my client is even arguing with with his defense of total accumulated cancelled loan payment checks (both interest and principal) he wrote to both lenders in 2007 does not come close to amount of interest Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 26, 2008 Report Share Posted March 26, 2008 Ah - then your client believes that they have an erroneous 1098, which is much more plausible. If he has all the checks, run an amortization schedule and calculate the actual interest to use on the A. I would guess it has been double reported because of the transactions being moved between companies. But do not file a return that your client does not believe represents the true amount of interest paid. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
jainen Posted March 26, 2008 Report Share Posted March 26, 2008 >>all the points and interest got transferred to new lender<< I have no idea what that means. All loans get sold, but I never heard of a finance company that will give away income they have already collected for themselves! Though we now see that it was not your original question, what some of us thought looked funny still looks funny. Somehow your client paid out more than he took in; we'll take your word for it. But back on the topic, if a client on March 26 told me the 1098 was wrong, I'd e-file Form 4868 and move on to the next one. Quote Link to comment Share on other sites More sharing options...
mircpa Posted March 26, 2008 Author Report Share Posted March 26, 2008 I strongly suspect they might have goofed up, My client when he spoke to current lender, they said, when the loan got transferred from old lender to them they paid some 20K interest on behalf of client to old lender, but client never paid this amount from his pocket. I am not filing return until this thing gets sorted out, my client is even ready to file complaint against current lender, come what it may Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 27, 2008 Report Share Posted March 27, 2008 I strongly suspect they might have goofed up, My client when he spoke to current lender, they said, when the loan got transferred from old lender to them they paid some 20K interest on behalf of client to old lender, but client never paid this amount from his pocket. I am not filing return until this thing gets sorted out, my client is even ready to file complaint against current lender, come what it may Well, those $20K are actually deductible because he is getting a loan for that. Maybe other transactions like that are deductible. Let's say I have a house and I need to pay $20K on mortgage interest and I go and get cash advances from my credit cards, I still deduct the mortgage interest. I think it is the same. Quote Link to comment Share on other sites More sharing options...
taxdan Posted March 27, 2008 Report Share Posted March 27, 2008 Well, those $20K are actually deductible because he is getting a loan for that. Maybe other transactions like that are deductible. Let's say I have a house and I need to pay $20K on mortgage interest and I go and get cash advances from my credit cards, I still deduct the mortgage interest. I think it is the same. I think that's exactly correct. I just had a client with $94K in interest paid and $95K of income. Neg am loan refi. Interest didn't come out of pocket, but built into new loan. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 28, 2008 Report Share Posted March 28, 2008 I think to be deductible, it has to be a different lender. I don't have time to make sure right now. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
mircpa Posted March 28, 2008 Author Report Share Posted March 28, 2008 Hello everybody Follow up to earlier question, today i spoke to old lender, they said client was behind in interest payments, since client refinanced with another lender, this interest amount was been paid by new lender, she says "This interest amount was paid by new lender on behalf of your client, so it is your client who gets 1098 interest statement" I dont know if it sounds ok, my client does not have that income to support interest payment amount. Quote Link to comment Share on other sites More sharing options...
jainen Posted March 28, 2008 Report Share Posted March 28, 2008 >>This interest amount was paid by new lender on behalf of your client<< It's a nasty trick, because he isn't using all the deduction and he can't roll it over to future years when he actually makes the payment. I kind of see the lender's point, as if the taxpayer had borrowed money to pay the interest. But I don't agree with it. Your client's economic position is completely unchanged. He did not refinance or get new loan terms. The rights to his payments were sold, but certainly not "on behalf" of him. The problem is what to do about it. Obviously you will never get a corrected 1099. You would have to recalculate interest paid, disclose the nonconforming treatment of the 1099 interest, and be prepared to support your position in audit--for the next almost-30 years. In my opinion, that is impossible for someone who can't even cover a minimum payment on time. Quote Link to comment Share on other sites More sharing options...
mircpa Posted March 28, 2008 Author Report Share Posted March 28, 2008 Does any one has a strategy to solve this issue, I even told them my client might have to report this issue to regulatory bodies, or issue a corrected 1098, because he never made those payments, they are not budging from their position Quote Link to comment Share on other sites More sharing options...
jainen Posted March 28, 2008 Report Share Posted March 28, 2008 >>Does any one has a strategy<< Yeah, I just gave you one. Recalculate the interest, disclose the inconsistent treatment of the 1099, and gird yourself for battle. But before you do so, figure out what "solve this issue" means for your client. What does he lose if he just takes the easy deduction this year? His deduction is so high that he doesn't owe any tax--is that the line you expect will get sympathy from the bureaucrats? If you think there is any regulatory agency that gives a hoot how subprime lenders track payments, you need to buy a newspaper. And if you think there is any regulatory agency that gives a hoot about some IRS form, I don't know what you need. Even the IRS doesn't care when someone reports more than they are required to. And this lender has irrefutable proof that they got paid the interest he owed them. If you don't like my strategy and want to make up your own, start with these cold facts. Your client is a deadbeat and his loan's been picked up by a hard-money lender. Paperwork is the least of his problems. Quote Link to comment Share on other sites More sharing options...
lbbwest Posted March 28, 2008 Report Share Posted March 28, 2008 Hello everybody Follow up to earlier question, today i spoke to old lender, they said client was behind in interest payments, since client refinanced with another lender, this interest amount was been paid by new lender, she says "This interest amount was paid by new lender on behalf of your client, so it is your client who gets 1098 interest statement" I dont know if it sounds ok, my client does not have that income to support interest payment amount. I think this thread is getting "lost in translation." For ease of reading let's ignore everything except the OLD lender. Interest Accumulated on Mortgage $81K principle of new mortgage $681K (implied principle amount of old morgage $600K.) The other deductibility issues (primary residence etc) do come in to play, but taxpayer did indeed pay 81K in mortgage interest. As stated in an earlier thread whether he cashed advanced his credit cards, (or won the lotto, or borrowed from mom) he did indeed PAY the 81K; by increasing his debt. lbb Quote Link to comment Share on other sites More sharing options...
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