If you have trouble making your mortgage payments, you may receive mortgage assistance. This is aid from any program that helps you prevent foreclosure.
Whether you received the money yourself or the money was paid on your behalf, it may not be taxable income. As a financially distressed homeowner, you received help and you didn’t lose your home. Even more good news is that you don’t have to claim it on your taxes. However, there is one area it affects you – the interest deductions.
What is Mortgage Assistance?
The state and HUD both provide some type of mortgage assistance. The Hardest Hit Fund is a state program. It provides the funds necessary to help homeowners that are still suffering from the housing crisis. Whether you suffer from the economic downturn or your home still hasn’t appreciated in value after the fall, the assistance may help. The funds are available in 18 states and provide almost $10 billion in aid total.
HUD may also provide mortgage payment assistance. HUD provides credit counseling as well as financial resources to help with your mortgage payments. You’ll deal with a non-profit counselor that will help you avoid foreclosure.
Claiming the Mortgage Assistance
You will receive IRS Form 1098-MA if you receive any type of mortgage assistance. This document shows the mortgage payments you made. It also shows the mortgage payments made on your behalf or any assistance you received.
While you don’t have to claim the income; you will have a different amount of mortgage interest and real estate taxes you may be able to claim. This can affect your total deductions.
You may only deduct the interest that you paid. The 1098 will show the total interest paid, but it will also break it down based on who paid it. If you are unsure how much interest you paid, you can ask your lender to break it down for you.
You must determine the exact amount of interest and taxes you paid out of your own pocket. This is the only amount you may deduct.
While you can’t take as large of a tax deduction when you receive mortgage assistance, you still have your home. If you didn’t receive the assistance, you might have gone through foreclosure. So while you might have a higher taxable income this year because of the reduced write-offs, it’s worth it. Once you are back on track you can start taking your full deductions again. Use the assistance to help you get back on your feet and making your own mortgage payments.