Financial institutions providing home mortgages will be
required to include more information on Forms 1098 furnished after 2016 as a
result of the temporary highway funding act signed into law on July 31, 2015. Form 1098 allows the IRS computers to match
the information reported by the financial institution to the interest deduction
claimed on your income tax return. The
purpose of the information matching program is to increase the accuracy of
compliance, so that deductions in excess of the actual interest paid, or in
excess of deduction limitations, are not claimed.
In recent years, the IRS has been concerned that interest
on mortgages in excess of $1.1 million is being deducted. Tax law generally restricts the interest
deduction to mortgages secured on your principal residence and/or on one other
residence, and that the interest deduction must be limited to the amount paid
on up to $1 million of acquisition indebtedness plus $100,000 of home equity indebtedness. Thus the total mortgage limit on which the
interest deduction may be claimed is $1.1 million. The mortgage limit can all be applied to home
acquisition indebtedness instead of requiring a $100,000 home equity loan.
New information reporting rules require the financial
institution to report the outstanding mortgage principal as of the beginning of
the calendar year (January 1, 2016 when this new law goes into effect), the
mortgage origination date, and the address of the property which secures the
mortgage. This new information will
enable the IRS to find taxpayers who are deducting interest on more than $1.1
million of home indebtedness and perhaps find those deducting interest on more
than one other home that is not their principal residence.
As a side note, for alternative minimum tax (AMT)
purposes, only interest on mortgages used for home acquisition or improvements
is deductible. Interest on a home equity
loan used for other purposes, while deductible for regular tax, is not
deductible for the AMT.
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