Tax Day: Have you hugged an IRS agent today?

[Caliga]

As usual, I get beau coup bucks back with my return.  Anti-tax sentiment is teh fial.

No, that's because you're teh fial.

Although maybe not anymore, as you suggested.

[Caliga]

You sure about that?  It has been decades since I worked for tips, but I never had to.  Has there been some change?

Big deal.  The American Way would be to simply drastically under-report your tip earnings. 

"Yes, Mr. Auditor, I do work weekend evenings at Olive Garden, but nobody ever shows up to dine there!"

[grumbler]

I asked my brother, a CPA, and he says that is incorrect. You are required to give the mortgage holder the information to report your interest, and he/she is required to report it, but if the mortgage holder fails in his/her responsibilities, you don't lose your deduction. But when you report, you need to provide the IRS the name, taxpayer ID, and address of the mortgage holder. You also will need to be able to support the amount of interest in the case of an audit.

Either your brother is incorrect, or you didn't explain the situation to him correctly.

The mortgage holder and mortgagee must have a signed contract, with interest terms spelled out, if you as the mortgagee wish to claim the interest.  If the mortgage holder doesn't even calculate the interest paid (necessary to create the contract), you won't have anything to show the IRS that demonstrates that you owed or paid any interest at all.  Copies of checks won't suffice.

It is true that you can still try to get an interest deduction without the Form 1098 (or whatever the form is), but if you don't have the contract (and thus the calculation of interest paid), you won't succeed.

[grumbler]

Big deal.  The American Way would be to simply drastically under-report your tip earnings. 
"Yes, Mr. Auditor, I do work weekend evenings at Olive Garden, but nobody ever shows up to dine there!"

The minimum you must pay taxes on is 15% of sales, IIRC.

[alfred russel]

I asked my brother, a CPA, and he says that is incorrect. You are required to give the mortgage holder the information to report your interest, and he/she is required to report it, but if the mortgage holder fails in his/her responsibilities, you don't lose your deduction. But when you report, you need to provide the IRS the name, taxpayer ID, and address of the mortgage holder. You also will need to be able to support the amount of interest in the case of an audit.

Either your brother is incorrect, or you didn't explain the situation to him correctly.

The mortgage holder and mortgagee must have a signed contract, with interest terms spelled out, if you as the mortgagee wish to claim the interest.  If the mortgage holder doesn't even calculate the interest paid (necessary to create the contract), you won't have anything to show the IRS that demonstrates that you owed or paid any interest at all.  Copies of checks won't suffice.

It is true that you can still try to get an interest deduction without the Form 1098 (or whatever the form is), but if you don't have the contract (and thus the calculation of interest paid), you won't succeed.

I didn't explain that situation to him, because that isn't what we were discussing. You said in your previous post, "The seller/mortgage holder must fill out a couple of forms and send one to the mortgage payer before the mortgage payer can claim that interest as deductible." That is, according to my brother, incorrect.

I'm also not aware of any requirement that interest terms be spelled out (much less be calculated). Maybe there is an exception for mortgage interest, but the tax code allows for imputed interest to be calculated.

[grumbler]

I'm also not aware of any requirement that interest terms be spelled out (much less be calculated). Maybe there is an exception for mortgage interest, but the tax code allows for imputed interest to be calculated.

When the previous owner of my house and I looked at having him hold the mortgage (as he had had the owner before him do), we looked at the legal requirements.  Among them is the written contract.  Some things are optional, but specific interest payments are not.  There are professional services which calculate all of this and they are apparently recommended by the IRS to avoid the serious problems one can encounter if they are not calculated properly.

Imputed interest is taxable as income for the lender, but not deductible by the borrower.

[alfred russel]

I'm also not aware of any requirement that interest terms be spelled out (much less be calculated). Maybe there is an exception for mortgage interest, but the tax code allows for imputed interest to be calculated.

When the previous owner of my house and I looked at having him hold the mortgage (as he had had the owner before him do), we looked at the legal requirements.  Among them is the written contract.  Some things are optional, but specific interest payments are not.  There are professional services which calculate all of this and they are apparently recommended by the IRS to avoid the serious problems one can encounter if they are not calculated properly.

Imputed interest is taxable as income for the lender, but not deductible by the borrower.

Per a discussion with my brother, he disagrees.

Imputed interest is deductible by the borrowed so long as the interest would otherwise be deductible, and this is not uncommon. The IRS has guidelines for determining imputed interest, but most CPA firms with a tax practice should have no problem with the calculation have be experienced performing it.

Any requirements for signed contracts are probably in state law rather than the IRS code. The IRS should be satisfied with any "persausive evidence of the arrangement." While all 50 states may require signed contracts, some foreign jurisdictions may not.