The IRS in Notice 2017-40 again extended the time period, this time through 2021, that taxpayers may use the safe harbor method of reporting HFA mortgage relief originally granted in Notice 2011-14. Notice 2015-77 had extended until the 2017 tax year the safe harbor method originally provided for in Notice 2013-7 of reporting payments made on a home mortgage that had received relief from a state housing agency from the Hardest Hit Fund (HFA Hardest Hit Fund).
The new notice also extends relief from penalties related to information returns for mortgage services and state housing agencies due to payments made under the program.
This notice represents the third extension of the safe harbor method for homeowners and information return relief for reporting agencies.
Specifically, the notice provides for the following relief for homeowners receiving payments under a qualified program:
For taxable years 2010 through 2021, a homeowner may deduct on his or her Federal income tax return the lesser of --
- The sum of all payments on the home mortgage that the homeowner actually makes during a taxable year to the mortgage servicer or the State HFA; or
- The sum of amounts shown on Form 1098, Mortgage Interest Statement, for mortgage interest received, real property taxes, and mortgage insurance premiums (if deductible for the taxable year under § 163(h)(3)(E)).
This safe harbor method of computing the homeowner's deduction applies for a taxable year if (1) the homeowner meets the requirements of §§ 163 and 164 to deduct all of the mortgage interest on the loan and all of the real property taxes on the principal residence, and (2) the homeowner participates in a State Program in which the program payments could be used to pay interest on the home mortgage.
The information return reporting relief is detailed as follows:
The Service will not assert penalties under §§ 6721 and 6722 against a mortgage servicer that reports on Forms 1098 payments received under a State Program during calendar years 2011 through 2021 if the servicer notifies homeowners that the amounts reported on the Form 1098 are overstated because they include government subsidy payments.
The Service will not assert penalties under §§ 6721 and 6722 against any State HFA for failing to file and furnish Forms 1098 for calendar years 2011 through 2021 if the State HFA provides each homeowner and the IRS a statement setting forth (1) the homeowner's name and taxpayer identification number (TIN), and (2) the amount of payments the State HFA made to the mortgage servicer under the State Program during that year (separately stating the amount the State HFA paid and the amount the homeowner paid). Except as provided in Rev. Proc. 2011-55 regarding use of Form 1098-MA, the statement the State HFA provides to the IRS must be a single statement that separately lists the names, TINs, and relevant payment amounts for each homeowner.
For calendar years 2011 through 2021, State HFAs may, at their option, use Form 1098-MA in accordance with Rev. Proc. 2011-55 to provide the information described in Notice 2013-7 instead of filing a single statement for the calendar year.