1098 form for an SDIRA?

Question

Do I need to send a borrower a 1098 for a note my SDIRA owns?

George Blower · Answer

While not required from an IRA perspective, borrowers will often ask for it. Your CPA may be able to assist in filling out as this generally falls outside the IRA custodian responsibility. The Form 1098 and instructions can be found on the following page.

https://www.irs.gov/forms-pubs/form-1098-mortgage-interest-statement

George Blower · Answer

@Michael Plaks

You make a good point about confusing the IRS if a Form 1098 is is issued  since it is not an IRA requirement; thus, the IRS may look it at twice and mistakenly think your IRA has engaged in at trade or business activity.

Michael Plaks · Answer

@Larry Flanagan

The advice above looks contradicting, so let me try to sort it out for you.

1. Required? Probably not. You're only required to issue 1098s if you're in a trade or business, and it would be hard for the IRS to argue that your IRA is in that position. Also, see #5 below.

2. Penalties? No, since filing is not required.

3. Can your borrower deduct interest without a 1098 from you? Absolutely yes. Just has to be careful to report it as "other" interest and not "mortgage" interest.

4. I recommend that all my NON-IRA private lender clients file 1098s. It helps borrowers and strengthens the relationship. Filing is extremely simple, can be done online via various 3rd party providers (not the IRS itself) and sometimes even for free.

5. I do NOT recommend it for IRA lenders, however. This is why. If you issue them - you're indirectly acknowledging that your IRA is engaged in a trade or business - which can potentially expose your IRA to UBIT tax. Do you agree, @George Blower and @Brian Eastman?

Pat L. · Answer

If you don't the IRS will assess a penalty per borrower/1098.

https://www.onlinefiletaxes.com/content/Penalty-for-failure-to-file-form-1098.aspx

Brian Eastman · Answer

@Larry Flanagan

Yes.  As the lender, your IRA should report the interest income so that your borrower can take the deduction if they are eligible.

1098 form for an SDIRA?

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