Real Estate Investor · Cincinnati, OH · Member since 2012 · 27 posts · 3 votes
I have a number of private loans to me. I am paying interest on these loans, but since they are private individuals they wont be submitting 1099INTs to me.
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
13y
You should be receiving a 1098 for the interest paid. If it is not secured by property you should be issuing a 1099-INT for interest paid to that person or business.
1099-INT is issued to the person who received the interest.
1098 is issued to the person who paid interest.
You should have an amortization schedule that you should be able to use.
My clients call me with questions like this all of time.
Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
7y
A lot of disagreement and confusion in this thread... Let's dive into the details.
The "$10 or more in interest" threshold triggering a 1099-INT that many mention applies only to banks and bond issuers per IRC Sec 6049 and the related regs. Agree with @Michael Plaks here.
IRC Sec 6049(b)(2) specifically exempts issuing a 1099-INT under IRC Sec 6049 if the debtor is an individual:
Exceptions
For purposes of subsection (a), the term “interest” does not include—
6049(b)(2)(A)
Interest on any obligation issued by a natural person
However, this doesn't exempt issuing an informational return for all non-bank and non-bond issuers in all situations. If the activity of an individual or entity rises to the level of a 'trade or business', it falls under purview of IRC Sec 6041 and its related regs as encapsulated in Treas Reg 1.6041-1(a)(1)(i):
Payments required to be reported
Except as otherwise provided in §§ 1.6041-3 and 1.6041-4, every person engaged in a trade or business shall make an information return for each calendar year with respect to payments it makes during the calendar year in the course of its trade or business to another person of fixed or determinable income described in paragraph (a)(1)(i)(A) or (B) of this section. For purposes of the regulations under this section, the person described in this paragraph (a)(1)(i) is a payor.
(A)
Salaries, wages, commissions, fees, and other forms of compensation for services rendered aggregating $600 or more.
(B)
Interest (including original issue discount), rents, royalties, annuities, pensions, and other gains, profits, and income aggregating $600 or more.
As you can see, we accountants disagree on technical details. There is no harm if you issue a 1099. But you can deduct the interest with or without a 1099. If you are ever audited, you will need to show that you're liable for the debt and have been making the payments.
Rental Property Investor · Sacramento, CA · Member since 2017 · 36 posts · 22 votes
5y
The consensus is issuing a 1099-INT works, whether or not it's mortgage-style secured by real estate, am I right?
The thing is we want to make this as easy as possible for our private (family/friends) lenders. If we just have to send them 1099-INTs, they just report that income on their tax return and we deal with the rest of the paperwork. As far as 1098 is concerned, it's supposed to come from the lender but we'd rather not make our private lenders confused figuring out how to do that.