Capitalized interest misreported on Form 1098s

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Not sure if this has been discussed in the past, but --

See below for link to a tax journal article.  Although maybe a little dense for the layman, it describes a Form 1098 reporting issue related to mortgages worked-out during/after the Great Recession.  The basic fact pattern is where a homeowner was behind on their interest payments, and the work-out rolled some or all of the delinquent interest into the principal of the "new" loan.

The Forms 1098 received each year after the workout generally do NOT detail payments with respect to the capitalized interest, which should be deductible as paid by the homeowner.  If the homeowner or tax preparer simply follows the amounts displayed on the 1098, they may be permanently losing hundred or thousands of dollars of interest deductions.

As indicated in the article, the banks/servicers claim that applicable IRS rules don't allow them to report differently, and are asking IRS for clarification/new instructions/forgiveness.  In the meantime, there's a pending class action suit against the banks for the "defective" 1098s.

Bottom line, as I see it:  if you had a loan workout with capitalized interest, don't take your 1098 at face value.  Dig into your details and/or consult a professional re:  filing amended returns, etc. 

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I can tell you that capitalized interest on student loans never gets reported after a refi.

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