Wrap around interest income

[NESTOR HOUGHTON]

Sold my home, I am carrying a wrap around mortgage. Original mortgage (Freedom M) is 3.75%, contracted a n escrow company to handle transactions. Escrow Co. fee is $30 per month, original existing  mortgage is (3.75% plus 1,5% MI) the wrap around mortgage (me been the beneficiary is 6%.

My monthly income is 6% less (3.75%+1.5%)=.5% less $30.00.

I received a 1099 from the escrow company for full 6%. Since the only monies I received myself were the 1.5%, I claim the escrow company needs to revise it 1.5% instead of the full 6%, please let me know if I am right and the escrow company needs to revise accordingly.

[DianeW777]

This would be considered investment interest expense and only deductible if you can itemize deductions on Schedule A. The escrow company is sending the total interest received which is what they would be required to do.

• What is Form 4952, Investment Interest Expense Deduction?
  1. Under Deductions & Credits > Retirement and Investments > Investment Interest Expense​​​​

Example:

• The seller extends to the buyer a junior mortgage which wraps around and exists in addition to any superior mortgages already secured by the property

• While you are logged into your TurboTax Premier account:
  • Federal Taxes tab
  • Select Wages & Income
  • Select I'll choose what I work on
  • Scroll to Interest Income
  • Select Interest from seller financed loans 
  • Continue to enter the information -Name, address and social security number of the buyer
  • Click the screenshot attached to enlarge and view for assistance.

When you hold a note between you and the buyer interest income is reported regardless of gain or loss on the sale.

The interest would still be considered income to you in the wrap even though it's paid directly to the bank.  You are liable for the loan and the payments are being made on your behalf directly instead of coming through you.

[NESTOR HOUGHTON]

I have a comment:

An escrow company  received the total money. The escrow company send the 1.5 %  received. 3.5% was sent to the mortgage, 1.5% was paid on mortgage insurance. and put $30 in their pocket, Why do I have to be responsible for all the money?. Some body else is buying the house, the mortgage company needs to be responsible for the rest of the interest and the escrow company for the $30. I did not receive any of the other moneys.

[NESTOR HOUGHTON]

That form is for deducting the interest paid by the buyer not for the seller