Mortgage Forebaerance agreement affecting tax situation?


S

Spin

Gurus,

Not a tax question per se, but I can't find a group devoted to the credit
industry or real estate. But since this may be an outside tax question I'll
ask it here. In this economic downturn, people are trying to re-finance
their mortgages for a lower interest rate and/or longer payment terms. In
rare circumstances, a reduction in principal. My question is, what about a
Forbearance agreement, in which postponement of loan payments, granted by a
lender or creditor, for a temporary period of time. This is done to give the
borrower time to make up for overdue payments. Would there be a tax
implication on this and, do you think this would affect one's FICO credit
rating?
 
P

Paul Thomas, CPA

Spin said:
Not a tax question per se, but I can't find a group devoted to the credit
industry or real estate. But since this may be an outside tax question
I'll ask it here. In this economic downturn, people are trying to
re-finance their mortgages for a lower interest rate and/or longer payment
terms. In rare circumstances, a reduction in principal. My question is,
what about a Forbearance agreement, in which postponement of loan
payments, granted by a lender or creditor, for a temporary period of time.
This is done to give the borrower time to make up for overdue payments.
Would there be a tax implication on this and, do you think this would
affect one's FICO credit rating?




If there's no change in the debt amount, then there are no direct tax
implications. Indirectly, there may not be enough interest paid to amount
to a hoot in the wilderness. So it's possible with the possible loss of
itemizing the taxpayer may fine themselves underpaid and owing come April.

Just a reminder that you are only able to deduct the "mortgage interest
PAID" - which means you have to remit a check to deduct the interest. So if
you don't make payments, you don't get any deduction. Future years, when
payments are (hopefully) made, is when the tax deduction for mortgage
interest paid will be felt.
 
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J

Jackney Sneeb

If there's no change in the debt amount, then there are no direct tax
implications.  Indirectly, there may not be enough interest paid to amount
to a hoot in the wilderness.  So it's possible with the possible loss of
itemizing the taxpayer may fine themselves underpaid and owing come April..

Just a reminder that you are only able to deduct the "mortgage interest
PAID" - which means you have to remit a check to deduct the interest.  So if
you don't make payments, you don't get any deduction.  Future years, when
payments are (hopefully) made, is when the tax deduction for mortgage
interest paid will be felt.
 

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