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Stephen G.
Stephen G., Sr Income Tax Expert
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I received Illinois Hardest t Funds in 2015. My 1098

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I received Illinois Hardest Hit Funds in 2015. My 1098 reflects accurately how much mortgage interest I paid. The 1098 also says that I paid all of my property tax. So my question is: Does being part of the hardest hit program change how much property tax I can claim on my taxes?

Unfortunately, no. You can only claim what YOU actually paid as an Itemized Deduction.

Steve G.

Customer: replied 10 months ago.
I have a 1098-MA. It doesn't mention anything about the property tax. How do I figure out how much property tax of the $9082.77 I actually paid?

Well, you are supposed to maintain those files.

Are your property taxes part of an escrow account maintained by your bank?

If so, you should receive a statement of the escrow activity, which shows your contributions to the escrow account & also the payment of the real estate tax. As long as the real estate tax payments in 2015, exceed your contributions, then all of your credits to the escrow account during 2015 is what you use for your Schedule A deduction.

If you don't have a summary statement of the escrow account activity, you'll have to call the bank & obtain the number representing your contributions and have them send you a cumulative record of the activity for your 2015 tax file as backup for the deduction which you should maintain in your files.

Are you sure you need a phone call? We can continue this way & go to the phone call if necessary.

Which program did you participate in?

The Illinois Hardest Hit Program offers two types of assistance:
1. Reinstatement Assistance (RA) is a one-time payment of all mortgage arrearage, fees, and penalties.
2. Monthly Mortgage Payment Assistance (MPA) pays 100% of monthly mortgage payments for up to 18 months while the
household makes a 31% monthly contribution payment to IHDA during their enrollment in the program.

Customer: replied 10 months ago.
No, the phone call isn't necessarily. I'll keep communicating this way. Thank you
Customer: replied 10 months ago.
MPA

OK, Did you make your 31% contribution under program?

Since the loan is designed to be forgiven unless you sell or refinance the property, I suggest that you simply claim all of the payments you made as interest expense.

Tax wise it doesn't matter whether it's real estate taxes or interest expense.

Does that answer your question?

Customer: replied 10 months ago.
if I understand you correctly, I should claim the property tax as usual because it's a loan.

No. You can only claim what you paid as the "loan" is designed to be forgiven. If you sell or refinance and have to payback the loan (ie. actually make payments) then you'll get the deduction. It's not the same as a bona-fide loan.

The only reason it's called a loan is to avoid abuse by individuals who would attempt to "churn" the property to gain an unfair financial advantage by taking advantage of the program for their own gain.

If you take the interest deduction as I suggested, you will not have a real estate tax deduction this year because you did not make any payments.

Customer: replied 10 months ago.
I did do my 31% contribution for January through August. But I made the full payment September through December. I'm using TurboTax so I'm not sure how to do an interest rate deduction. Do I just add the property tax number to my box 1 in my 1098?

I don't know any other way to explain this; your 31% won't come close to the total interest expense; so forget about the property tax deduction and take all of your payments; the 31% plus the full payments you made in September thru December, as interest expense. Don't try to over-complicate the situation.

I thought about all the variable before I gave you my thoughts as what to do.

I can tell that there are probably many folks who will incorrectly deduct the number on the 1098, despite the fact that they didn't pay even 1/3 of that number and the fact that they won't ever have to repay the "loan". That's always an option, it's wrong, but many things on tax returns are often wrong. I'm not suggesting that you do that in any way, shape or form; but I'm just point out the reality of what happens with these reporting forms. Don't ask me what the chances are of getting "caught" if you were to take this route; nobody can give you a definitive answer on that question; you obviously want to keep in compliance with the law; so deduct 100% of your payments as interest & zero for real estate taxes. That will result in no problems with the IRS & you can sleep soundly on that.

Customer: replied 10 months ago.
I have to admit, I'm still having a hard time understanding you. I think you are saying to claim my September, October, November and December payments as interest expense plus the 31% contribution I made in the other months. Is that correct?

Yes, you've got it exactly right.

That's what I think you should do, given the facts & circumstances as you have explained them.

Steve G.

Customer: replied 10 months ago.
Ok thank you
Customer: replied 10 months ago.
i did the math and this situation makes me nervous. I'm currently set up to deduct about 2k in interest and 9k in property tax. That's 11k total. Per our conversation, I multiply $1508 (my 31% contribution) times 8 months and add in my four full payments of 2150(1508 x 8) + (2150 x 4) = $20,664.00That seems like a pretty large deduction to take, especially considering that I was only at 11k earlier today. Any thoughts?

What did you deduct last year, ie. 2014 for interest expense & real estate taxes?

I can't relate to your figures as I don't know anything about you financing terms.

Unless you have a very old mortgage, then most of your mortgage payments are interest. If that's not the case, then of course you may not deduct the principal payments as either interest or real estate taxes.

If you were only paying 31% of your mortgage payment for 8 months of 2015, and that payment was $1,508., then that means that your mortgage payment normally was $4,685. + -. The interest alone for only 8 months of 2015 had got to be substantially more than $20,664., so I don't see where you have an issue nor do I see where you came up with a figure of only 2k interest out of 11K in total deductions. The numbers just don't make any sense the way you are presenting them. Your total payments, had you been able to make them 100% yourself would have approximated $58,000. Surely, there's a lot more than $20,664 in interest included in $58,000.+ in mortgage payments.

Customer: replied 10 months ago.
Thanks for taking the time to do this.Hardest Hit ran from March 2014 to August 2015, so both 2014 and 2015 taxes were affected by hardest hit. Last year I simply used the numbers put in my 1098 but I want to be sure I'm getting it right. Hence why I taken the time to contact you. I want my taxes to be accurate.According to hardest hit the 31% borrower's contribution is 31% of what I make monthly, not 31% of my mortgage payment. So they determined using their formula that given my underemployment I should continue to pay $1508 monthly and they would cover the rest which was about $700 a month. So there is a lien on my property for around 12k because that is what was "loaned" to me during the process of this program.
Original mortgage was for 202K in august of 2010. Interest rate is 4.75. (Currently owe 186K)So most of my monthly payment goes to interest. In January of 2015 $740.00 went to interest, $315 to principal and $1200 to escrow. I live in Cook County in IL so taxes are pretty high.
I was paying 1508 out of 2256 total so 66% of my monthly mortgage. So in my head I figured out of the 12 months I paid 66% of my taxes for the first 8 months and 100% of my taxes for the remaining 4 months. Since total taxes paid out in 2015 were $9082, that roughly $756 a month. 66% of 756 is 499. 499 times 8 is 3996.
(756 x 4) + 3996= $7020. I am not a CPA so I figured I'd better ask before I start screwing up my taxes. I would think it's fair to deduc $7020 in property tax from my taxes. What do you think?

Ah, now I see. The website isn't clear on what the 31% is; that makes sense that it is related to income.

I figured we'ed have a meeting of the minds eventually; East Coast vs Mid-West - we speak a different language;

OK, let's see what I would give for a rough estimate based upon my adjusted understanding;

You will need to prorate the Hardest Hit "loan" payment between interest & real estate taxes.

I'm not going to address 2014 at this point;

So for 2015:

As I understand the combination of what you said before & now, you paid $1,508. for eight months & $2,256. for 4 months.

For the 8 months you paid $1,508. x 8 or $12,064.

For the 4 months you paid $2,256. x 4 or $ 9,024.

--------

........................................................Total $21,088.

................................................................======

...........The Program Paid ........$ 748. x 8 or $5,984.

.................................................................======

Now, if I had the information, I'd allocate the figures in two parts:

First for the 8 months, you paid .............. 12,064/18,048 or 66.8 %

Second for the 8 months the Program paid 5,984/18,048 or 33.2 %

Then for the 4 months, you paid .............. 9,024/ 9,024 or 100%

Summary:

For the first 8 months, I'd take 66.8% of the Interest for the first 8 months

Plus for the last 4 months 100.0% of the Interest for the last 4 months

I'd add those figures together & that would be my interest deduction on Schedule A for 2015.

Then, I'd do the same thing for the Real Estate Taxes, perhaps using the contributions to the escrow account for the first 8 months plus the last 4 months in the same percentages as noted above for the interest, and that would become my deduction for real estate taxes on Schedule A for 2015.

Stephen G. and other Tax Specialists are ready to help you
Customer: replied 10 months ago.
That sounds like a solid plan! Thank you kindly!!
-Lisa