I hold the mortgage for a relative. They pay me payments (principle and interest). What form do I use to send them proof of interest paid for their itemized write off?

[oregoncac]

They will be itemizing their return and need info to prove interest paid. When I claim I received this interest on my return will Turbo tax automatically generate the form they need for their return? If not, where do I get it and can it be filled out electronically?

[Bsch4477]

See excellent response above. 

[rjs · Accepted solution]

There is no form for reporting interest paid on a private mortgage. Form 1099-INT is for reporting interest that the person received as income, not interest that they paid. Banks and other commercial lenders use Form 1098 to report mortgage interest paid, but you do not send a Form 1098 unless you are in the business of making mortgage loans.

Your relative does not have to provide proof with their tax return for the mortgage interest deduction. They just report the amount on Schedule A line 8b, which is for home mortgage interest that was not reported on Form 1098. They do not have to provide proof unless the IRS asks for it. You can give them a simple statement of the amount of interest that they paid, in any format that you like, in case they get audited.

Note that the relative cannot deduct the mortgage interest unless the loan is secured by the home and the mortgage agreement is recorded with the appropriate local or state government authority. See "Secured Debt" in IRS Publication 936, Home Mortgage Interest Deduction, for details.

Did you sell the home to your relative, or just lend them the money to buy it? There are some additional requirements for reporting interest on a seller-financed loan.

[MJG74]

I lent the money to a relative to pay for their home.  Where is that reported?  Is it considered seller financed loan,  even though I did not own the home?

[DaveF1006]

This isn’t a seller-financed loan. Seller-financing means the person selling the home gives the buyer a loan. Since you didn’t own the home and just provided the funds, this is considered a Private Family Loan.

If you charge interest, you can give your relative a written statement or a simple spreadsheet with your name, address, and Social Security Number and the amount of mortgage interest paid. They’ll need this to claim an itemized deduction for the interest payment on their tax return.

For the interest to be deductible, the loan must be secured by the home, and the mortgage agreement should be recorded with the local or state government. This protects your rights if the loan isn’t repaid.

Report your interest income on Schedule B of your tax return, even if you don't get a 1099-INT. Please read the following post by VanessaA that supports my answer.

Mortgage Interest on Loan to Family Member

[MJG74]

Thank you. I had searched for a previous response but did not get such a good answer.