Tax Season Is Upon Us. Let the Confusion Begin!

Avi Zanjirian, audit manager at the accounting firm Czarnowski & Beer, has been spending extra time on the telephone lately. “We’re getting lots of calls from property managers because co-op shareholders are telling them that the tax software they’re using is requiring them to state the balance on their mortgage as of January 1, 2019,” Zanjirian says. “But Form 1098 requires taxpayers to report their mortgage balance as of January 1, 2018.” 

Certain tax-preparation software, Zanjirian adds, won’t file a tax return without the more recent mortgage balance information. He speculates the requirement is driven by the Internal Revenue Service, which is trying to red-flag taxpayers who are deducting too much mortgage interest under the revised rules of the so-called Tax Cuts and Jobs Act of 2017. 

That act reduced the amount of home mortgage debt that itemizers can deduct interest on – from $1 million to $750,000 – and suspended the deductibility of interest on home-equity loans and lines of credit “unless they are used to buy, build, or substantially improve the taxpayer’s home that secures the loan.” 

“We don’t know what the IRS wants,” Zanjirian says. “My theory is that the software companies goofed, or the IRS does want the more current information but they never put that on Form 1098.” 

The confusion should not be particularly vexing to condo unit-owners or to single-family homeowners. “It’s more of a nuisance for co-ops because the shareholders’ share of the co-op’s mortgage interest is prepared by the managing agent or accountant,” Zanjirian says. “Instead of individual shareholders calling the co-op’s managing agent or accountant, the board should come up with a system to get the January 1, 2019 mortgage balance to shareholders.” 

If the co-op has an interest-only mortgage, this snafu is moot, Zanjirian notes, because the balance doesn’t change from year to year.