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Another tax question - where to put interest received?
Old 02-14-2010, 10:44 PM   #1
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Another tax question - where to put interest received?

In 2009, we loaned a friend $45,000 to pay off her cousin for her portion of the purchase of waterfront property on Whidbey Island, WA which adjoins another family-owned property. Her cousin refinanced his home 7 years ago with a balloon to pay cash for the property and it was time to pay him off. I approached her about loaning the money because CD rates are so low.

The money we loaned her is secured by her primary residence which has plently of equity ($180,000) even in today's market. All the paperwork was completed by a lawyer, recorded and is official.

I'm thinking the interest she paid us belongs on Schedule B but TaxAct is looking for me to enter the amount via a 1099-INT, 1099-OID, K-1 or as a seller-financed mortgage. I'm guessing I should use the seller financed mortgage form as it will get the required info onto Schedule B.

I will send her a report of how much interest she paid which I assume she will put on her Schedule A, Line 11, "Home mortgage interest not reported to you on Form 1098."

Does that sound right?
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Old 02-14-2010, 11:06 PM   #2
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Why aren't you sending her a 1098 for the interest she paid you?
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Old 02-14-2010, 11:20 PM   #3
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Originally Posted by LOL! View Post
Why aren't you sending her a 1098 for the interest she paid you?
Is it really necessary to provide the info on a true 1098 form since Schedule A accomodates interest info provided by other than 1098, i.e. Line 11 "Home mortgage interest not reported to you on Form 1098?" I'll send her a spreadsheet with the payments and totals which will give her the required info.

I've done two land contracts over the years and provided the "interest paid" information in a letter and never had an issue.
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Old 02-15-2010, 10:12 AM   #4
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It's not a seller financed mortgage as you did not own the property. You should just report is as interest income. A 1099-Int form from her is not necessary.

Also, you are correct in that you don't need to send her a 1098 form. She can just enter under "interest not reported to you on Form 1098".
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Old 02-15-2010, 12:05 PM   #5
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I guess I'll have to fool TaxAct by putting in a strawman 1099-INT. No other document is generated if I do the 1099-INT so I should be fine.
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