Mortgage Insurance Premium Deduction Confusion Illustrates Hassle of 10-Series Reporting

Clark Sells
January 8, 2018

One box on IRS form 1098 has the potential to cause confusion for organizations this tax filing season, demonstrating how frustrating staying compliant with 10-series reporting requirements can be.

The Mortgage Insurance Premium (MIP) deduction allows taxpayers to deduct mortgage insurance they paid in a given year. However, Congress has not yet passed a provision to allow the MIP deduction for tax year 2017.

Wait and See

The good news for homeowners is that Congress will probably allow the MIP deduction eventually. Homeowners like the MIP deduction and tend to get angry if they don’t get it. The bad news for banks and lenders carrying out reporting this season is that nobody knows when, or even if, Congress will approve the deduction.

That’s a problem for filling out form 1098, which includes a box for the amount of mortgage interest a customer paid in 2017. Right now, banks aren’t required to put an amount in the box because Congress hasn’t approved the MIP deduction. However, as a matter of customer service, banks like to let customers know how much interest they paid.

Plus, banks that don’t fill in the box risk sending incorrect forms to customers and the IRS if Congress does subsequently approve the MIP deduction. But if they do fill in the box, they risk running counter to IRS rules, which currently state that the box should only be filled in if the deduction passes. It’s literally a wait-and-see situation in the heart of reporting season.

Par for the Course

This has happened before. Three years ago, the MIP deduction passed—in late January. Subsequently, the PATH Act prevented a last-minute scramble. But this year, that scramble is likely to happen once again, as Congress weighs the MIP deduction in a changing tax climate.

All of this illustrates why 10-series reporting is so difficult and confusing. Laws and regulations can change quickly and at inopportune times. Turning reporting over to a third party with expertise in the discipline and the ability to react quickly to changes in laws and regulations is the most effective way of staying in compliance while avoiding frustrating scenarios.

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Clark Sells

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