Is Trustee Required to Report Home Loan Interest?

[Guest Phil L]

If a plan allows loans for the purchase of a principal residence that meets all the requirements for having the interest be tax deductible to the borrower, is the trustee required to issue a 1098 Form for the loan interest paid to the plan for the year?

The instructions to the 1098 form clearly state that the form only needs to be filed by those who are "engaged in a trade or business" and who received the at least $600 of interest during the year.

Is there a requirement for the trustee to file a 1098 form if the loan interest exceeds $600 during a calendar year?

Thanks.

[Guest halka]

I think you have to look at the specific loan transaction. Generally, plans do not actually take and file a mortgage on the home -- they just require participant to state the loan purpose. If there is not an official recorded mortgage, a 1098 would not be issued (and deduction of interest paid by participant would be at risk). If the loan was structured as a true mortgage, hopefully the plan trustee will issue a 1098 (even though they are not in the loan business).

[KIP KRAUS]

I'am confused. A person takes a loan from a pension plan, pays himself back plus interest and gets to take a tax deduction because the loan is for a primary residence? I didn't think this was allowed? Can someone enlighten me.

[Guest halka]

Kip: If you are careful (and plan is cooperative), it is possible. Subject isn't much talked about... Not sure why. Probably best (maybe only) discussion is in PLRs 8935051 & 8933018.

[NNichols]

"... we file a 1098 for a couple of P loans.

According to IRC 72(p)(3) deductions are disallowed if the loan is ...secured by elective deferrals (we take the conservative road, so if any part of a loan is secured by elective deferrals then its not deductible).

You can also read PLR 893018 & PLR 8742025. Letter 893018 sez that its ok to deduct the interest as long as its not disallowed under 72(p)(3) and the loan is secured by the residence.

Those sites should serve as proof that you CAN deduct interest. I haven't found anything regarding the filing of Form 1098. Even if a 1098 isn't filed, a P should still be able to prove to the IRS all of the above and deduct. It wouldn't surprise me if a Trustee refused to file the 1098 due to administration headaches.

I used Sal Tripodi's "ERISA Outline Book" while researching this question. " from Yahoo groups Tax professionals

So if I pay in non deductible interest is it non taxable when it comes out?

[masteff]

You are mixing metaphors, so to speak.

Deductibility of the loan interest payment is irrelevant to subsequent taxation of tax deferred earnings.