- quote -

Thanks all for the help. I will try the route of explaining
my netting method first with the IRS and see if it can get
resolved in that manner. If that fails, I will have to amend
the return.

Steve Quinton

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- quote -

No doubt.

The prepayment penalty is a 2002 Schedule A deduction. The
2003 refund is 2003 line 21 income.

It's not dealer's choice. Amend your 2002 return if
necessary, but the prepayment penalty was probably included
in your 2002 1098 and, thus, already deducted.

Phil Marti
Topeka, KS

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Steve Quinton wrote:

- quote -

I think a letter explaining what happened and also ataching
copies of the schedule a you filed along with copy of the
1098 circulating both items should do the trick.

Cheer$,
Harlan Lunsford, EA n LA

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"Steve Quinton" <Steve_Quinton[at]comcast.net> wrote

- quote -

Probably a letter explaining what you did should suffice.
The refund of the mortgage interest should have been
reported on Line 21 "Other Income", and that's where they
were looking for it. I suppose no one knew that you already
netted it from your interest paid.

The only real issue is if you had reduced itemized
deductions because of AGI limitations or something, where
the method you used for some reason created a lower tax than
the correct way. AGI limitations and AMT come to mind.

--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net

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I sold my home in 2002, and was slapped with a prepaid
mortgage interest penalty of $3,450. I purchased a new home
in 2003, and financed the mortgage with the same mortgage
company, who refunded the 2002 prepayment interest penalty
of $3,450. In 2003, I received two form 1098's from this
mortgage company. The first 1098 was for my standard 2003
mortgage interest of $8,500 on my new home. The second form
1098 had $3,450 in box 3, refund of overpaid interest.

I reported these two form 1098's by netting them together,
and entered $5,050 as my net mortgage interest on schedule A
in 2003 (since they were issued by the same company).

The IRS sent me a letter saying I underreported my income by
$3,450, the amount of the refunded mortgage interest form
1098, and said I owe additional tax and penalty.

Will a letter to the IRS detailing my netting method ($8,500
- $3,450) along with copies of the form 1098's resolve this
matter, or does the mortgage interest refund need to be
reported as other income on line 21? It works to my benefit
to net the two items on schedule A.

Thank you so much for your help.

Steve Quinton

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