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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120801  
Subject: Splittling deductions on separate returns Date: 6/22/2011 9:16 AM
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I'm asking this for a friend who's husband seems to have gotten her into a mess with IRS. She has received notice that she owes $2100 due to a problem with mortgage interest deduction. She filed married filing separately but used the numbers he gave her. She assumes he split the mortgage interest between the two of them. He makes the mortgage payments but the house title and mortgage are joint.

I've advised her to consult a CPA before responding to IRS or making any payment. I know I haven't been able to provide much info but wonder if you see anything wrong based on the little info I have. My friend is terribly upset because she always keeps her financial affairs in good order. It took me a while to convince her not to just send the IRS what they asked for just to get them off her back.
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Author: rosewine Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113563 of 120801
Subject: Re: Splittling deductions on separate returns Date: 6/22/2011 9:24 AM
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Not specific to this problem, but the IRS has been wrong on ever single letter about 2009 taxes I've reviewed for clients in the last two weeks. It's always that the documentation doesn't match up. I'm not quite sure how they can be missing a form when it was all submitted electronically. I'm also really getting tired of listening to the hold music on a continuous loop that plays on the tax practioner hotline.

Rose, EA

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113565 of 120801
Subject: Re: Splittling deductions on separate returns Date: 6/22/2011 10:19 AM
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I'm asking this for a friend who's husband seems to have gotten her into a mess with IRS. She has received notice that she owes $2100 due to a problem with mortgage interest deduction. She filed married filing separately but used the numbers he gave her. She assumes he split the mortgage interest between the two of them. He makes the mortgage payments but the house title and mortgage are joint.

What year are we dealing with? Was her Schedule A correctly prepared? This could be as simple as putting the number on the wrong line or failing to provide the required information about the 1098.

If she can get a grip on herself, tell her to call the number on the notice and ask for more information about what's wrong. If she can't get said grip, tell her to write.

Phil
Rule Your Retirement Home Fool

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Author: wsmit56 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113605 of 120801
Subject: Re: Splittling deductions on separate returns Date: 6/27/2011 9:17 PM
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You are getting good advice from the others, but I can add another angle to this. Mortgage interest is typically reported on Form 1098. Form 1098 would show all of the mortgage interest for a particular loan. The potential problem comes into play because only one social security number is shown on the Form 1098. So the husband's social security number may be on the Form 1098, but not the wife's. When the IRS matches the mortgage deduction against their 1098 file, the wife would appear to have none. This could be fairly easily explained in a letter. The IRS will likely be agreeable as long as no one deducted more than their share. It should be noted that state law may come into play in terms of who is entitled to the deduction. To deduct mortgage interest, a taxpayer needs to 1) be liable for the debt, and 2) have paid the interest. Whether the taxpayer paid the interest may be determined by state law (i.e. community property laws). Of course, the facts and circumstances are important.
W. Robert Smith, CPA, CMA
Tax Preparer Learning Systems, LLC
www.taxpreparerlearningsystems.com

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113606 of 120801
Subject: Re: Splittling deductions on separate returns Date: 6/27/2011 11:27 PM
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Thanks, wsmit56. I think you've probably hit upon the problem. I've passed the information on to my friend. She was already planning to write the IRS this week.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113607 of 120801
Subject: Re: Splittling deductions on separate returns Date: 6/28/2011 12:31 AM
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Did her husband itemize? Not knowing anything about his situation, $2,100 in interest isn't sufficient on its own to itemize. Both spouses must either itemize or use the standard deduction.

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113608 of 120801
Subject: Re: Splittling deductions on separate returns Date: 6/28/2011 6:32 AM
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Did her husband itemize? Not knowing anything about his situation, $2,100 in interest isn't sufficient on its own to itemize. Both spouses must either itemize or use the standard deduction.

Both itemized. And $2100 wasn't the interest deduction. It was the amount IRS said she owed. About $100 was interest and the rest was tax. No penalties were charged. IRS conveniently enclosed a payment plan in hopes she would just accept their decree. If it's only documentation, which she says their letter indicates, I think she has a good chance to win this one. She has a copy of the 1098 so it's certainly worth writing a letter. 2009 was their first year filing separately but she may face the same issue for 2010 and eventually 2011.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113609 of 120801
Subject: Re: Splittling deductions on separate returns Date: 6/28/2011 2:13 PM
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To follow up on the matching problem, she needs to know whose social security number is on the 1098 from the mortgage company. If it's hers, she would report her share of the interest on line 10 of schedule A (on the 2010 version anyway).

If her social security number is NOT on the 1098, she needs to report her portion of the interest on line 11.

That should take care of any issues with matching the 1098 to her tax return.

--Peter

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113872 of 120801
Subject: Re: Splittling deductions on separate returns Date: 8/26/2011 11:36 PM
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I'm asking this for a friend who's husband seems to have gotten her into a mess with IRS. She has received notice that she owes $2100 due to a problem with mortgage interest deduction. She filed married filing separately but used the numbers he gave her. She assumes he split the mortgage interest between the two of them. He makes the mortgage payments but the house title and mortgage are joint.

I've advised her to consult a CPA before responding to IRS or making any payment. I know I haven't been able to provide much info but wonder if you see anything wrong based on the little info I have. My friend is terribly upset because she always keeps her financial affairs in good order. It took me a while to convince her not to just send the IRS what they asked for just to get them off her back.


Here's an update on my post from two months ago: I convinced her to fight this and she worked through the paperwork herself. She had documentation that the loan is in both names even though the bank only put his SS# on the tax statement. Today she got a notice that IRS has accepted her response and she owes nothing. She's very happy.

This was for 2009, the first year she filed married filing seperately. I told her to be sure to keep everything where she can find it. She'll probably have the same problem with 2010 tax return when IRS gets around to looking at it, but now she knows how to fight it.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113873 of 120801
Subject: Re: Splittling deductions on separate returns Date: 8/27/2011 8:56 AM
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She filed married filing separately but used the numbers he gave her. She assumes he split the mortgage interest between the two of them. He makes the mortgage payments but the house title and mortgage are joint.

Hmmm...Since 'he' makes the mortgage payments, I'm a little surprised that she didn't have to show proof that she had made 50% of the mortgage payments in order to claim 50% of the interest deduction. From IRS Pub 936:

More than one borrower. If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Show how much of the interest each of you paid, and give the name and address of the person who received the form. Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13.

Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Let each of the other borrowers know what his or her share is.


It may be that even though you said 'he' makes the mortgage payments, he's making them from a joint account, which would mean that really 'they' make the mortgage payments. Similarly, if they live in a community property state, and assets earned during the marriage are used to make the payments, then 'they' would probably be considered to be making the payments. Other than that, I would have expected that she would have had to show that she actually made 50% of the mortgage payments in order to claim 50% of the interest deduction.

AJ

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113874 of 120801
Subject: Re: Splittling deductions on separate returns Date: 8/27/2011 9:14 AM
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Yes, payments are made from joint account. They share the housing expenses and other routine expenses. She files seperately because she is concerned he may have outside income he isn't reporting. He refuses to disclose a lot of financial documents and she thinks he has other accounts she doesn't know about. He's had problems with IRS the last few years for underpaying estimated tax. He's retired, drawing from 401k, and does some consulting. She has a good job and more than covers her tax liability through payroll withholding. Both I and a CPA told her a couple years ago to stop exposing herself to liability for his problems by filing seperately. The marriage is probably headed for divorce but for now they share a house.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113875 of 120801
Subject: Re: Splittling deductions on separate returns Date: 8/27/2011 11:23 AM
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It's always that the documentation doesn't match up. I'm not quite sure how they can be missing a form when it was all submitted electronically.

The most likely explanation is a software problem. If congress would get their act together and not wait until late in the calendar year to pass tax legislation for the current tax year, there would be time to write and actually test tax software.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113876 of 120801
Subject: Re: Splittling deductions on separate returns Date: 8/27/2011 11:38 AM
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Both I and a CPA told her a couple years ago to stop exposing herself to liability for his problems by filing seperately

Has her husband always been this way or it is a change in personality?

Filing jointly is a first step. She could still be liable for debts he is incurring. She should make an attempt to find out what is going on before filing for divorce.

She isn't signing documents that she isn't allowed to read?

My late brother-in-law had a similar personality and he left quite a mess. My sister-in-law signed documents she wasn't allowed to read. Their tax preparer (professional and paid) added to the mess with stupid tax mistakes. I thought they were committing deliberate tax fraud, but it was due to incompetence.

During this time the tax preparer also died in an accident. I talked to the person who was suppose to take over. After the first conversation, I would not let them talk to the IRS and had her move to a preparer who was competent. It took a couple of years to clean up the mess. Fortunately, with the tax preparer and BIL both deceased, the IRS didn't aggressively persue the situation. The IRS wasn't the only problem to be reseolved.

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113877 of 120801
Subject: Re: Splittling deductions on separate returns Date: 8/27/2011 1:06 PM
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Apparently the husband has never been very good at managing money, but he is also very controlling. Keeping things secret is a part of that control. She probably did sign tax forms in the past under pressure without seeing all the backup documents. In recent years he has filed electronically. That just made it easier for him to hide things. Some of his consulting income comes from foreign companies and that's what she worries he may not be reporting. She has no proof but no longer trusts him.

Hoping in another year she will be out of this situation completely, but for now at least she needs to protect herself as much as possible. I calculated approximate amount of the mortgage based on IRS disputed amount and asked her if it seemed reasonable. I was concerned he might have forged her signature on a re-fi, but she thinks the amount is about right.

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