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2nd mortgage holder never reported interest to IRS

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makeitso

Junior Member
Arizona

Hello, we filed our 2005 taxes last year (2006) and included the amount of mortgage interest we "anticipated" that we paid in 2005 from our second mortgage. (our second was held by an "individual" and not necessarily an actual mortgage company and we have since refinanced and paid the 2nd mortgage off)

A while later after we filed, we did finally receive a 1098 form from the second mortgage holder *the individual* , but it was incorrect. Since we had already filed the taxes we left it alone.

Fast forward it is now 2007, and a couple of weeks ago, we received a letter from the IRS stating that the mortgage interest we reported did not match the information on their end. and that we now owe approx. $2200.00!

Apparently the second mortgage holder has NEVER supplied the IRS with a 1098 at all. Our problem is... the telephone number we had for this individual that held our previous second mortgage is no longer good. The amount of the 1098 that she send to us is wrong to the tune of about $6000.00. This second was an interest only loan in which in 2005 we paid approximately $8200.00 in interest only payments, but the 1098 that was sent to us only shows $2451.00.

We are not sure what to do at this point. Any advice would be greatly appreciated...
 


abezon

Senior Member
It sounds like you got a CP2000 letter, which is the easiest one to respond to. It's a special division of the IRS that deals with reconciling tax returns & the information documents the IRS received. Anyway, read the letter carefully to see what they want. You'll likely end up sending them a copy of your loan document to prove that the loan was interest only, then sending copies of checks or bank statements to show the amount paid.

You should also carefullly read your loan document to make sure you were right calling everything interest.

BTW, you're supposed to file a 1099-INT whenever you pay someone more than $10 interest in a year. File a 1099-INT for 2005, 2006, & 2007. That way you have been consistent. It also smacks your lender, who I suspect used an amortization table on an interest-only loan. If you ever get into a seller-financed mortgage situation again, insist that a professional escrow company handle the payments. The company will also file the appropriate 1098.
 

makeitso

Junior Member
Arizona

Thanks for the fast reply!

I did recheck the letter and it does show CVP2000 at the bottom. The IRS wants us to provide copies of the documents used to support the amounts claimed on form 1040: Schedule A line 10.

Which is the mortgage interest issue. They also outline the amount we reported opposed to the documentation they have. (They dont show the 2nd mortgage holder at all)

We will call them on Monday to see exactly what they want us to send... Just wasnt even sure where to start with this one!

Thanks again
 

abezon

Senior Member
So you send a letter that says something like
"Dear Nameless Faceless IRS Minion,
We received your letter CVP2000 and disagree with your proposed changes.
The total mortgage interest we paid in 2005 was $xx,xxx. On x/x/200x, we purchased our home. The financing consisted of a primary loan for $xxx,xxx & a secondary loan for $xx,xxx. The primary loan is administered by Countrywide Mortgage Co. We paid them $xx,xxx mortgage interest during 2005. A copy of Form 1098 from Countrywide is attached. The secondary loan was a seller-financed interest only loan. We paid the seller, Ms. Dim Bulb, $x,xxx during 2005. We have included a copy of the loan document showing that all money paid to Ms. Dim Bulb is interest, and copies of our cancelled checks/bank statements showing the 12 payments of $xxx made during 2005. Ms. Dim Bulb's SSN and address are: yyy-yy-yyyy, 1234 Can't Read A Contract Drive, Can't Do Math, AZ, 80310.
If you need any further information, please contact us,
Sincerely,
John & Jane Frustrated With Our Seller
/address/
/phone/ "


The IRS letter will tell you what else to send them with your response -- there's a response page you include your letter, 'cause the person who deals with your response has never heard of you & you need to give them a fighting chance at understanding what the heck you're talking about.

Do not include the incorrect 1098 from the seller. Since she never filed it, as far as the IRS is concerned, it doesn't exist. Besides, the actual loan docs & proof of payments trump whatever she tells the IRS anyway.
 

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