1098 for a Family member Loan

6 Replies

Hello, 

Last year my dad gave me a 100k full recourse loan, at fair market interest rate, for a primary residence.

Looking at IRS pub 1098 https://www.irs.gov/pub/irs-pdf/i1098.pdf It looks like we need to fill out a 1098.  This allows me to deduct the interest expense.  

I've received 1098's from a bank but never created one my self. Is it that simple or am I missing something?

Thanks, 

John

Same question here. Is a lender required to 1098 a borrower, of can the borrower 1099 the lender for the interest paid if an individual rather than a lending institution.

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

@John Laney @John Thedford Is the loan secured by the property? If so, it's considered a mortgage and the lender should issue a 1098 to the borrower to reflect the interest paid. It is their obligation to do so. If they don't, it's their headache; you are still allowed to deduct the interest whether or not you received a 1098...if you paid it, you can deduct it.

If the loan is not secured by the property, it's not considered a mortgage and a 1099-INT form should be issued by the borrower to the lender to reflect interest paid throughout the course of the year.

Nicholas Aiola, CPA in New York (#119518)

@Nicholas Aiola

I have always been unsure about this. From the 1098 instructions:

"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... You are not required to file this form if the interest is not received in the course of your trade or business..."

This appears to relieve @John Laney 's dad from the 1098 reporting requirement.

Next, from the 1099-INT instructions:

"Interest excluded from reporting. You are not required to file Form 1099-INT for interest on an obligation issued by an individual..."

This appears to relieve John from the 1099-INT reporting requirement.

Disclaimer: I'm not sure that I'm correct. I invite my colleagues to chime in.

PS. But the interest IS deductible if the loan is secured by the property, even without the reporting forms.

@John Laney

@Nicholas Aiola and @Michael Plaks are great and helpful. Either way reporting on 1099 or 1098 or no reporting you can deduct the interest and your father must report the income is my understanding. If you do that I don’t believe you will have any extra IRS taxes or penelties. I usually record a mortgage or deed of trust to make sure it is “deductible” interest and it also improves asset protection. 

I have advised the lender in these situations to issue a 1098. My thought at the time is that it isn't incorrect to report mortgage interest on a 1098 and I want to encourage the lender to report the interest income. Although I haven't seen it, there must be times when the income goes unreported.

@Bob Langworthy   

I also tell all my PL clients to issue 1098s. There is no downside, and it's easy. 

I'm still wondering about compliance aspect in these situations. Is it required or not?

As to using 1098s to enforce income reporting - I doubt that the IRS tracks the lender's income off of 1098s.

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