Instructions For Form 1098 - 2006 (Page 4 of 27) in pdf

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tenant-stockholders who are individuals and from whom the

If the interest is paid outside the United States, you must

cooperative has received at least $600 of interest during the

satisfy the documentary evidence standard described in

year. See the TIP under box 1 on page 1098-4.

Regulations section 1.6049-5(c).

Collection agents. Generally, if you receive reportable interest

Payer of Record

payments (other than points) on behalf of someone else and

The payer of record is the individual carried on your books and

you are the first person to receive the interest, such as a

records as the principal borrower. If your books and records do

servicing bank collecting payments for a lender, you must file

not indicate which borrower is the principal borrower, you must

this form. Enter your name, address, taxpayer identification

designate one.

number (TIN), and telephone number in the recipient entity

If you permit a subsequent purchaser of the property to

area. You must file this form even though you do not include the

assume the loan without releasing the first purchaser from

interest received in your income but you merely transfer it to

personal liability, the subsequent purchaser is the payer of

another person. If you wish, you may enter the name of the

record. Such subsequent purchaser’s name, address, and TIN

person for whom you collected the interest in box 4. The person

must appear on Form 1098.

for whom you collected the interest need not file Form 1098.

Multiple borrowers. Even though there may be more than one

However, there is an exception to this rule for any period that

borrower on the mortgage, you are required to prepare Form

(a) the first person to receive or collect the interest does not

1098 only for the payer of record, and only if such payer of

have the information needed to report on Form 1098 and (b) the

record is an individual, showing the total interest received on

person for whom the interest is received or collected would

the mortgage. Even if an individual is a coborrower, no Form

receive the interest in its trade or business if the interest were

1098 is required unless the payer of record is also an individual.

paid directly to such person. If (a) and (b) apply, the person on

whose behalf the interest is received or collected is required to

Payments by Third Party

report on Form 1098. If interest is received or collected on

Report all interest received on the mortgage as received from

behalf of another person other than an individual, such person

the borrower, except as explained under Seller Payments

is presumed to receive the interest in a trade or business.

below. For example, if the borrower’s mother makes payments

Foreign interest recipient. If you are not a U.S. person, you

on the mortgage, the interest received from the mother is

must file Form 1098 if the interest is received in the United

reportable on Form 1098 as received from the borrower.

States. A U.S. person is a citizen or resident of the United

However, do not report mortgage interest received from any

States, a domestic partnership or corporation, or a nonforeign

governmental unit (or any subsidiary agency). For example, do

estate or trust. If the interest is received outside the United

not report any interest received as housing assistance

States, you must file Form 1098 if (a) you are a controlled

payments from the Department of Housing and Urban

foreign corporation or (b) at least 50% of your gross income

Development (HUD) on mortgages insured under section 235 of

from all sources for the 3-year period ending with the close of

the National Housing Act.

the tax year preceding the receipt of interest (or for such part of

the period as you were in existence) was effectively connected

Seller Payments

with the conduct of a trade or business in the United States.

Do not report in box 1 of Form 1098 any interest paid by a seller

Designation agreement. An interest recipient, including a

on a purchaser’s/borrower’s mortgage, such as on a

recipient of points, can designate a qualified person to file Form

“buy-down” mortgage. For example, if a real estate developer

1098 and to provide a statement to the payer of record.

deposits an amount in escrow and tells you to draw on that

escrow account to pay interest on the borrower’s mortgage, do

A qualified person is either (a) a trade or business in which

not report in box 1 the interest received from that escrow

the interest recipient is under common control as specified in

account. Also, do not report in box 1 any lump sum paid by a

Regulations section 1.414(c)-2 or (b) a designee, named by the

real estate developer to pay interest on a purchaser’s/

lender of record or by a qualified person, who either was

borrower’s mortgage. However, if you wish, you may use box 4

involved in the original loan transaction or is a subsequent

to report to the payer of record any interest paid by the seller.

purchaser of the loan.

See Points below for information about reporting seller-paid

A lender of record is the person who, at the time the loan is

points in box 2.

made, is named as the lender on the loan documents and

whose right to receive payment from the payer of record is

Points

secured by the payer of record’s principal residence. Even if the

You must report certain points paid for the purchase of the

lender of record intends to sell or otherwise transfer the loan to

payer of record’s principal residence on Form 1098. You must

a third party after the close of the transaction, such intention

report points if the points, plus other interest on the mortgage,

does not change who is the lender of record.

are $600 or more. For example, if a borrower pays points of

The agreement must be in writing, identify the mortgage(s)

$300 and other mortgage interest of $300, the lender has

and calendar years for which the qualified person must report,

received $600 of mortgage interest and must file Form 1098.

and be signed by the designator and the designee. A designee

Report the total points on Form 1098 for the year of closing

may report points on Form 1098 (as having been paid directly

regardless of the accounting method you use to report the

by the payer of record) only if the designation agreement

points as income for federal income tax purposes.

contains the designator’s representation that it did not lend such

Who must report points. The lender of record or a qualified

amount to the payer of record as part of the overall transaction.

person must file Form 1098 to report all points paid by the

The agreement need not be filed with the IRS, but the

payer of record in connection with the purchase of the principal

designator must keep a copy of it for 4 years after the close of

residence. If a designation agreement is in effect for a

the year in which the loan is made.

mortgage, only the person designated in the agreement must

A designated qualified person is subject to any applicable

file Form 1098 to report all points on that mortgage. See

penalties as if it were the interest recipient. Thus, a designator

Designation agreement earlier.

is relieved from liability for any applicable penalties.

Amounts received directly or indirectly by a mortgage broker

Nonresident Alien Interest Payer

are treated as points to the same extent they would be treated

as points if paid to and retained by the lender of record. The

You must file Form 1098 to report interest paid by a nonresident

lender of record must report those points paid to a mortgage

alien only if all or part of the security for the mortgage is real

broker.

property located in the United States.

Reportable points. Report on Form 1098 points that meet all

Report the interest based on the following:

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the following conditions:

If the interest is paid within the United States, you must

request from the payer the applicable Form W-8 (withholding

1. They are clearly designated on the Uniform Settlement

certificate) as described in Regulations section 1.1441-1(e)(1).

Statement (Form HUD-1) as points; for example, “loan

1098-2

Instructions For Form 1098 - 2006 Page 4

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