Are you getting your Tax Credit for Mortgage Interest paid in your Chapter 13?

mortgage-interest-paid-tax-credit-150x150Is your Chapter 13 plan paying mortgage payments that were delinquent when you filed bankruptcy?  Is your Chapter 13 plan paying the current mortgage payments through the bankruptcy?  If so, you are missing out on your mortgage interest tax deduction.

Your mortgage company often won’t send the IRS or the trustee the Mortgage Interest statement each year for what you paid through the plan.

So you don’t have any proof that mortgage interest was paid, and neither does the IRS.

Here is how you can claim the credit for mortgage interest:

  1. Find the interest element in the lender’s proof of claim. Every creditor must file a proof of claim in a Chapter 13.  The attachment to that form, has a line in Part 2 for “interest due”. That line shows us what part of the missed payments was made up of mortgage interest.
  2. Calculate what percentage of the arrears is mortgage interest. This is found in Part 3 of the lender’s claim. Take the “interest due” amount you located in Step 1 and divide it by the total at the foot of Part 3. That’s the percentage of the total claim of the lender that’s interest.
  3. Access the Chapter 13 trustee’s site for payments to mortgage creditor On the trustee’s site for your case, find the claim filed by the mortgage lender.  There should be a list of the date and amount of each payment made to the creditor for your mortgage arrears.

Total the payments for the last calendar year and multiple that total by the percentage of the claim that is interest, from Step 2 above. Now you have the number that represents what the trustee paid your creditor in mortgage interest for that calendar year.

Your figure for mortgage interest paid in a year is an approximation.  By the end of the plan, the amount of interest paid will equal the amounts you’ve calculated this way.

The creditor may have applied it to your account differently.  If this calculation is off, it probably underestimates the amount of interest in the early payments from the trustee.

We’ve done this because they didn’t tell either the IRS or you what you paid in mortgage interest. So, you may have to show the IRS how you got to a deduction that doesn’t appear in their records.

Alternatively, you could use the Request for Information process found in RESPA to ask the servicer of your loan how much interest you paid in a calendar year.

Servicers are required to provide answers about loan servicing within 30 business days of your request.  Requests must be in writing and contain identifying information.

Now you need to amend your earlier tax returns.

Federal tax law allows you to amend tax returns for three years from filing.  There’s an IRS publication for amending returns. You can calculate what you paid through the Chapter 13 plan for prior tax years and amend those returns to claim this deduction.

Gather your calculator and get on the trail of these valuable mortgage interest deductions.

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