Level 4

Mortgage Interest Audit

Forum|Forum|3 years ago
May 30, 2023
2 replies
8 views

My client got the mortgage interest audit. Turns out they over-reported their interest since the loan is more than $750,000. We expected them to adjust the taxes and send a bill.

Instead they sent a response saying they are not allowed to deduct any interest at all for 2021 because "they did not establish the amount shown was interest expense and was actually paid".

What documents can we provide to prove mortgage interest was legit and it was paid (besides the 1098 form and maybe the closing statement from the purchase)?

Tax Talk

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sjrcpa

Level 15

Copies of cancelled checks or autopay receipts for the monthly payments.

The more I know the more I don’t know.

BobKamman

Level 15

That's interesting, IRS seems to have adopted the attitude of "if we can't trust you to know the $750K limit, we can't trust you on anything. How do we know the loan wasn't taken out for a trip to Monte Carlo?" So I think you're on the right track with the closing statement, especially if the address is the one on the tax return. And I would include a signed taxpayer statement that the loan is on a qualifying residence.

When you write "they sent a response," what did they ask for in the first one, and what were they sent?

sjrcpa

Level 15

I'm actually surprised they caught this, but pleasantly.

One year, when the limit was $1 million + $100,000, and we applied the limits correctly for my client's $2.5 million mortgage, he got audited. We had to provide the closing statement, the loan agreement, and since he had the house built, the construction contract. There was probably some other stuff, too.

The more I know the more I don’t know.

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