Rental Property interest paid

[as9405]

 am in a unique situation-

I have multiple rental properties, some SFD and some small 20 units apartment.

All my LLCs are disregarded entity  for tax purposes, so I file them with my own personal tax,

Unfortunately banks are not required to send 1098 to these LLCs.  Clearly those huge amount of interests need to be deducted as my expenses against each property of its' loan interests.. 

IRS does know these are similar to 1098 expenses, but where do I place these interest expenses on my schedule E?  

All my interests are applied against the loan, and all amount of loan was to pay the secured loan.

Can this be placed under other interest?

[tagteam]

Line 12 - Mortgage interest paid to banks, etc.

Where else would you enter the interest?

[as9405]

True.  That's exactly I thought I should do.  But IRS was not sent 1098 since the loan was to my disregarded entity for tax purposes LLC, and bank said they are not required to send 1098 to an LLC.  I was only using the LLC to hold the property.

Since IRS did not receive the 1098, they think I am over deducting tax interests. 

I do my own taxes, but I have audit defense with Turbo Tax.  So far, I don't have a good answer from them.

[tagteam]

It doesn't matter that you don't have a 1098; you should have records (statements) that reflect the amount of interest you have paid which should suffice if you are ever questioned.

[Critter-3]

You  can ask the bank for the amount of interest paid during the year even if a 1098 form is not issued.  For IRS support you should also have an amortization worksheet showing that amount as well if you are ever audited. 

[Carl]

Every mortgage statement I've ever received from any lender, shows the interest paid year-to-date. So the December statement will show you the total interest paid on a particular loan.

The 1098 may or may not be required or sent. But the bank has to report the interest they received from you, as income. So there "is" a record (usually in multiple places) that you paid the interest, and that the lender received the interest.
Regardless, interest paid on mortgaged rental property is reported on line 12 of the SCH E. If entering data in step-by-step mode (versus forms mode) you enter it in the program "as if" you received a physical 1098.

[as9405]

Thank you very much.  I have all the bank statements showing YTD interest paid.  Hopefully, IRS won;t question me further.

[as9405]

My agent has been dealing with IRS on the rental property interest expenses and they are still sending me deficiency letter without reviewing all the commercial interest payments I paid.  This was for 2021.  My agent is still working with IRS on this. She submitted all my mortgage bank statements, and I don't know how IRS does not see these submission.  Are they automated or any individual working on my behalf?

As I stated before, commercial lenders are not required to send 1098.   I placed all my interest expenses under 1098 and mortgage payment line.  Letter says I have over stated my interests expenses as they do not see 1098 as interest payments on my record.

I have done the same thing for 2022 which was submitted in Oct 2023.  I am leaning towards moving my non 1098 received interest expenses to "Other interest" line and file an amendment.  My tax liability should not change.  

Any thoughts and comment?

Also Doesn't TurboTax allow efile for 2022 amendment?  Any idea, or do I have to submit on paper? If efile is possible, any guide would be appreciated.

Thanks

[DianeW777]

There is nothing wrong with moving the amount to 'Other' interest.  Yes, TurboTax does allow you to amend your tax return for 2022, and I will post a link here to help you. You will submit your amendment by mail (paper). 

Prior-year returns must be paper-filed, as e-filing is no longer available for them. We'll walk you through that process when you get to the File section in the software.

After installing the software, open it and follow the onscreen instructions to file your return.

Here are some other resources that might help:

• Accessing a prior-year return
• Amending a prior-year return

The IRS may begin to get back on track however since COVID, it has been taking several months and overlapping tax seasons to get resolution from experience.  It sounds like you have an advocate helping with this so it's a matter of just keep moving forward.

@as9405 

[as9405]

Thanks for your response.

This will be my first time sending amendment,  Yes, I can see amendment can done using same year TurboTax software,

I wish I could submit electronically, but it looks like I have to mail it.

One more question - Since I am only moving interest expenses from line 12 to line 13 on Schedule E for those I don't have 1098, do I need to attach all documents of changes showing evidence of interest expenses?  Would explanation on 1040X be sufficient?  I did all my changes, I see no tax liability.

[DianeW777]

Yes, your explanation will be sufficient.  You can certainly send copies of your interest expense that is not reported on a Form 1098, it would be proof of your reason you are amending the return. It shows you are organized and diligent in your tax reporting responsibilities. 

@as9405