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New final mortgage insurance premium reporting regs apply to 2013 and thereafter

November 27, 2013

T.D. 9642, 11/26/2013; Reg. § 1.6050H-3

IRS has issued final regs regarding the reporting requirements that apply to persons who receive mortgage insurance premiums. The regs apply only to 2013 and any future years for which the mortgage insurance deduction may apply; there is no reporting requirement for 2012.

Background. Under Code Sec. 6050H(h), any person who in the course of a trade or business receives premiums for mortgage insurance from any individual aggregating $600 or more for any calendar year must file an information return. Code Sec. 6050H(h)(3)(B) defines the term “mortgage insurance” to mean mortgage insurance provided by the Veterans Administration (the predecessor to the Department of Veterans Affairs), the Federal Housing Administration, or the Rural Housing Administration (the predecessor to the Rural Housing Service) or private mortgage insurance (as defined by section 2 of the Homeowners Protection Act of 1998).

In general, Code Sec. 163(h)(3)(E) treats premiums paid for qualified mortgage insurance by a taxpayer in connection with acquisition indebtedness with respect to a qualified residence as qualified residence interest. Before amendment in 2013, Code Sec. 163(h)(3)(E) was effective for amounts paid or accrued between Jan. 1, 2007, and Dec. 31, 2011, or properly allocable to any period ending on or before Dec. 31, 2011, on mortgage insurance contracts issued on or after Jan. 1, 2007. The American Taxpayer Relief Act of 2012 (ATRA), P.L. 112-240, retroactively applied the tax treatment of qualified mortgage insurance premiums as qualified residence interest for 2012, and it extended that treatment to premiums paid or accrued on or before Dec. 31, 2013, or properly allocable to any period ending on or before Dec. 31, 2013, on mortgage insurance contracts issued on or after Jan. 1, 2007. Unless extended or made permanent by further legislation, Code Sec. 163(h)(3)(E) will not apply to amounts paid or accrued after 2013 or properly allocable to any period after 2013.

On May 7, 2009, IRS published temporary regs (T.D. 9449) regarding the Code Sec. 163 deduction for qualified mortgage insurance premiums and the reporting requirements under Code Sec. 6050H(h). See Weekly Alert ¶  13  05/14/09.

On May 7, 2012, IRS published final regs (T.D. 9588) adopting the proposed regs under Code Sec. 163. Those final regs did not finalize the proposed regs relating to the reporting requirements under Code Sec. 6050H(h) for entities receiving mortgage insurance premiums. At that time, the deduction for qualified mortgage insurance premiums under Code Sec. 163 did not apply to amounts paid or accrued after Dec. 31, 2011, and, per the preamble to the current TD, IRS determined not to require the reporting of nondeductible premiums. The temporary regs on the reporting requirements, which were in Reg. § 1.6050H-3T, expired on May 4, 2012.

Final regs add to temporary regs. The new regs do not change any of the substantive content of the temporary regs, but they add the following: mortgage insurance premiums that must be reported under the above reporting rules must be reported on the Form 1098 (Mortgage Interest Statement) or a successor form that is filed pursuant to Reg. § 1.6050H-2(a) with respect to the mortgage of the individual who paid the mortgage insurance premiums. (Reg. § 1.6050H-3(d))

Effective date. The final reg applies only to mortgage insurance premiums that are paid or accrued after Dec. 31, 2012, during periods to which Code Sec. 163(h)(3)(E) applies. (Reg. § 1.6050H-3(f))

RIA observation: As noted in the “Background” section above, under current law, Code Sec. 163(h)(3)(E) is scheduled to expire at year-end, so, under current law, the new reg only applies to 2013 reporting.

The temporary regs, i.e., Reg. § 1.6050H-3T, continue to apply before May 5, 2012. (Reg. § 1.6050H-3(g))

The TD’s preamble notes the following corollaries to these effective date provisions:

 

…There were no final or temporary regs requiring information reporting with respect to qualified mortgage insurance premiums paid or accrued during 2012. Therefore, information reporting with respect to qualified mortgage insurance premiums was not required for premiums paid or accrued during 2012.
…Because information reporting with respect to mortgage insurance premiums received during 2012 was not required, no penalty under Code Sec. 6721 or Code Sec. 6722 (failure to file information return and failure to file payee statement, respectively) will apply with respect to the failure to report mortgage insurance premiums received during 2012.
…The fact that an individual did not receive a Form 1098 reporting the amount of mortgage insurance premiums paid for 2012 does not affect whether the individual satisfied the requirements under Code Sec. 163(h) to be able to treat qualified mortgage insurance premiums as qualified residence interest.
…Any individual who (i) paid or accrued qualified mortgage insurance premiums in the calendar year ending Dec. 31, 2012, or properly allocated these premiums to the calendar year ending Dec. 31, 2012, on mortgage insurance contracts issued on or after Jan. 1, 2007, and (ii) did not previously treat those amounts as qualified residence interest, may, within the applicable period of limitations, file a Form 1040X (Amended U.S. Individual Income Tax Return) for 2012 to claim a refund based on the treatment of those amounts as qualified residence interest.