From: larry@dprmpt.UUCP (Larry)
Newsgroups: misc.taxes
Subject: Prepaid Mortgage Interest (was: Re: What and When can I ...)
Summary: Interest due in 1993 NOT deductible in 1992 even if Paid in 1992
Date: 21 Jan 93 19:00:59 GMT
Reply-To: larry@dprmpt.UUCP (Larry)
Organization: Data-Prompt

In article <430@dprmpt.UUCP> larry@dprmpt.UUCP (Larry) writes:
>In article <1993Jan14.183810.17573@cbnews.cb.att.com> ask@cbnews.cb.att.com (Arthur S. Kamlet) writes:
>>In article <233.141.uupcb@tfd.coplex.com> terry.bunch@tfd.coplex.com (Terry Bunch)  writes:
>>>
>>>That is not correct.  If you make a payment early you can deduct it in
>>>the calendar year the payment was made.  I.E.  your mortgage payment is
>>>normally due on Jan 15 '93 and you paid (and got credit from the
>>>mortgage company) on or before Dec 31 '92.  You CAN write off the
>>>interest in '92.
>>
>>In fact, you do not have to get credit from the mortgage company in
>>1992.
>>
>>As long as you write and date and mail your check in 1992, you can
>>deduct even if the mortgage company doesn't receive the payment
>>until 1993.
>
>That's what I thought, too, BUT...
>
>I sent my mortgage company a check for both my January and February
>house payments a week before the end of 1992 so I could claim the
>extra month's interest in 1992.  I specifically noted on the payment
>stubs that the extra check was for the Feb. 1993 payment and NOT to be
>applied to reduce principal or escrow.
>
>When I got my "1098 Substitute" statement 3 days ago, it said:
>
>	TOTAL INTEREST APPLIED 1992 (NEXT DUE DATE 03/01/92) $ X,XXX.XX
>	  LESS NET PREPAID INTEREST - CURRENT YEAR               YYY.YY
>	1992 NET INTEREST PAYMENTS REPORTED TO IRS *****     $ Z,ZZZ.ZZ
>
>$ xxx.xx represents the interest portion of the Feb. 1993 payment.  I 
>called Customer Service and was told that "the IRS told them that only the
>January payment's interest could be deducted in 1992" and said that
>this was not the bank's rule but that the IRS made them do it this
>way.  What this means is that even though I paid the extra payment in
>1992 and the bank received and posted it in 1992, I still cannot
>deduct it until 1993.  I'm confused !?!?  This means I get the same
>interest deduction this year whether I paid the extra interest or
>not!
>>
>>I suspect more checks for deductible taxes and interest and medical
>>payments and charities, etc, are dated December 31 than any other
>>day of the year.
>
>Yeah, but if the bank is correct, then any prepaid interest is only
>deductible if the bank reports it to the IRS as "Paid in 1992" and you
>receive a Form 1098 to that effect.
>
>I will be checking with the IRS and my CPA on this and will post a
>followup for those interested.

Well, I checked with my CPA and he told me that he thought I should be
able to deduct the interest in 1992; but he called me back to tell me
that he was mistaken--Section 163 of the IRS tax code specifically 
states that Cash Basis taxpayers cannot accellerate interest payments 
into the current year by paying the interest in advance.  He didn't 
have the exact paragraph cite, but he verified that the bank is correct.  

So if you paid a mortgage payment for 1993 in advance hoping to deduct 
the interest in 1992, you will be out of luck if your bank follows 
the IRS code.

Sounds like a lot of people (including me) misunderstood the rules!
I didn't call the IRS but I trust my CPA's advice a lot more than 
the IRS, anyway.
-- 
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* Larry Johnson                         VOICE:  (301) 622-0900          *
* INTERNET: larry@dataprompt.com        UUCP:   ...!uunet!dprmpt!larry  *
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Newsgroups: misc.taxes