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Of all the potential write-offs available to taxpayers, the mortgage interest deduction is perhaps the most loved. It is a large deduction and can really make a difference when it comes to the bottom line on your taxes. Alas, news coming down the pike is it could also get you audited.
The Treasury Inspector General for Tax Administration does random studies to see how the IRS can improve tax collection efforts. The agency believes it is missing out on between $300 to $400 billion dollars in tax revenues every year, better known as the tax gap. The Tax Inspector General did a study on 1098 forms compared to 1040 income statements. What is a 1098 form? It is the form filed by your lender with the IRS telling them how much you paid in interest on your mortgage for the year.
So, why is the 1098 form an issue? Well, the Tax Inspector General took a sample of 1098s for taxpayers and compared them to their 1040 tax returns. Guess what the results showed? In roughly 25 percent of the cases, the income reported by the taxpayer could not support the mortgage that was being reported by the lender. Put another way, it appeared as though the taxpayer was not reporting their true income and cheating on their taxes.
One study focused on 200 tax returns. The Inspector General found that 58 of the 1098 forms were not supported by the income reported in the tax returns. A closer look at the offending 58 returns showed that taxes had been underpaid by as much as $611,000. That’s an average of $10,500 per return. This number is actually probably low since someone underreporting income is probably also cutting corners elsewhere.
The Treasure Inspector General concluded its report by strongly suggesting the IRS set up a program to review mortgage interest deductions. The IRS has enthusiastically agreed to and you can expect audit notices to start going out soon. There is nothing illegal about claiming the mortgage interest deduction. Just make sure your income supports the numbers being reported.
Thomas Ajava is with ListofNYCTaxAttorneys.com – get more tax information and find a list of NYC tax attorneys for advice and representation on tax issues.
Article Source:http://www.articlesbase.com/mortgage-articles/claiming-your-mortgage-interest-deduction-could-cause-audit-1300543.html
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