1099-PATR refund based on interest paid toward land mortgage

[TaxesRtaxing]

I need clarification on whether to report the cash patronage refund shown on 1099-PATR (box 1) as taxable income. This 2023 refund was based on the proportion of interest I paid the prior year for a loan I took out to purchase 50 acres. The land is used for personal enjoyment, but I am also using part of the barn on the land as an office/shop for my part-time job (lawn-care business). Thank you!

[JulieS]

It depends on the amount of deductible expense included in the patronage dividend, unless your received a qualified written notice of allocation as part of a patronage dividend. 

If you received a qualified written notice of allocation, you need to report as income the amount specified in the notice. 

If you didn't get a notice, the IRS says:

"Don’t report as income any patronage dividends you receive from expenditures that weren't deductible, such as buying personal or family items, capital assets, or depreciable property. You must reduce the cost or other basis of these items by the amount of such patronage dividends received." Publication 225

So, you need to figure out how much of the interest you paid last year was deducted as a business expense. 

For example:

The amount in box 1 is $5,000.

Last year, you deducted $1,200 interest as a business expense for the use of the barn.

In this case $1,200 of the patronage dividend is taxable this year and the remaining $3,800 reduces the basis of the land. 

The taxable portion of your patronage dividend is reported on Schedule F. Follow this link for more about how to report it in TurboTax. 

[TaxesRtaxing]

Thank you so very much for taking the time and making the effort to respond! We have never deducted any of the mortgage interest expense (business or personal), and with your feedback I feel confident about not reporting the patronage refund. Thank you again!