How to report mortgage interest income (investment) on 2017 1040 schedule B

[bottomline]

Client receives mortgage interest income as an investment. It is not reported on a 1099-INT since it comes directly from the property owner to the client. Client has several of these and has never lived in the houses so it is not Seller Financed Mortgage.

How do I report it on ProConnect Tax Online? 

[George4Tacks · Accepted solution]

I may be getting just a bit old and senile, but why can't you just list the Name and Amount on Schedule B? Input would look like this. All of this assumes you are not in the business of lending money, in which case it would be reported on Schedule C. 

[abctax55]

"...in the business of lending money,"
Bingo.   Thus the need for more info.

[itonewbie]

Yep, that's why questions are raised...

[bottomline]

Maybe I'm overthinking it. The header says "Banks, S&L's, etc" so that leads me to believe that only income reported on a 1099-INT should be shown here.
It's not really a business. Client invests in mortgage receivables instead of in the stock market
If you loaned your next door neighbor $1,000 and they paid you back $1,050, how would you report the $50 interest income with ProConnect?

[itonewbie]

While there is not one set of rules the courts have applied in testing what constitutes a trade or business and there is no denial that the bar is set high, whether the client invests in mortgage receivables instead of stock market is ***not*** a relevant consideration.  There is clearly a profit motive here, there apparently are frequent and regular activities, it would appear that there is a fair amount of due diligence work and formalities that need to be carried out with each transaction, the quantum could be rather substantial, and there would be proactive management of the loans outstanding as well as collectibles.  These factors do point to these activities being more than passive investments.  This is different from incidental loans you extend to a neighbor.

If you believe this is reportable on Sch B only and no 1099-INT should be required, you can simply enter the "Name of Payor" and the amount received under "BANKS, S&L, ETC." on the Quick Entry screen for interest Income.

[abctax55]

This *sounds* to me like the client may just be in the business of lending money....so perhaps @bottomline you are "underthinking" this.

[abctax55]

Sounds like private party "hard money" loans.  I agree, NMI to determine how this should be handled given that there are "several" of these loans.  

[bottomline]

You are correct. They are "hard money" loans. (I didn't want to use that term because I didn't know if anyone knew what it meant)

[itonewbie]

You may be confused.  The seller does not need to have lived in the property previously in order for the reporting requirement to apply, only that the person to whom the indebtedness is owed is the person from whom the residence was acquired.  See §6109(h).

In PTO, the seller who financed the mortgage will report the interest income on Sch B with the identifying information of the buyer by entering the information under Income / Interest Income (1099-INT, 1099-OID) / Payer / Additional Payer Information.

[bottomline]

Lender never owned the house. Lender is simply loaning money for purchase or refi.

[itonewbie]

This is different from what you stated above.

"It is not reported on a 1099-INT since it comes directly from the property owner to the client."
Do you mean the seller is a third party and the loan was extended to the seller instead of the buyer?  How are these loans structured?  What is the collateral?

"Client receives mortgage interest income as an investment...Client has several of these..."
What kind of note or agreement was executed for these?  What are the terms and interest rates charged?  It is starting to sound a bit "funny".

[bottomline]

It's not "funny".  Lender is not the seller. Lender is an independent third party.
Mortgage broker has a person that wants to purchase or refi a home. They can't get a traditional bank loan for one of many different reasons (mobile home, bad credit, loan amount too small, building vs land value doesn't meet criteria, etc). Since it doesn't qualify for a "traditional" mortgage, a "hard money lender" loans the money. It is secured by the real estate (generally less than 50% loan to value) and amortized over 10-30 years. Interest rates are 10-15%.

Drake and ProSeries software handle these quite easily. ProConnect Tax doesn't want to handle interest received unless it is via 1099-INT

[Accountant-Man]

Schedule B, "Loan to Bob" $100.