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TAX MATTERS

homeowner assistance fund were given Safe harbor parties on behalf of taxpayers, such as to
an optional IRS safe harbor for The revenue procedure prescribes two insurance companies and homeowners’
computing their itemized deductions safe-harbor methods, the allocation associations, do generally have to be
for mortgage interest and real prop- method and the deduction method, for reported to those third parties, with
erty taxes. homeowners to compute their itemized certain exceptions.
The guidance, in Rev. Proc. 2021-47, deductions for mortgage interest and Lenders or mortgage servicers
is intended to allow taxpayers to real property taxes if, in the same tax that receive a homeowner’s mortgage
compute their itemized deductions year, they: payments directly from an eligible entity
for mortgage interest and real prop- ■ Received a HAF payment (or had a should not report the interest so received
erty taxes when they have received a HAF payment made on their behalf); on Form 1098. However, mortgage
payment in the same tax year (or a pay- ■ Used the payment to pay qualified insurance premiums treated as interest
ment has been made on their behalf) expenses, at least one of which is a aggregating $600 or more during a tax
from the program, the Homeowner qualified housing payment expense; year received by lenders or mortgage ser-
Assistance Fund (HAF). It also clarifies ■ Paid a portion of a qualified housing vicers must be reported without regard
that HAF payments are excluded payment expense from their own to their source on Form 1098.
from homeowners’ gross income and sources; The revenue procedure also provides
addresses information reporting issues ■ Claim itemized deductions on their relief from penalty for lenders that file
for payers and lenders. federal income tax returns; and and furnish a Form 1098 that errone-
Money from the HAF, established ■ Meet the statutory requirements to ously includes mortgage interest received
as a COVID-19 pandemic relief deduct the qualified mortgage inter- directly from a state, so long as they
measure by the American Rescue Plan est expenses or qualified real property notify the homeowner of the error and
Act (ARPA), P.L. 117-2, is distributed tax expenses if paid from their own overstated amount within 30 days.
to states, territories, tribes, and the sources. The revenue procedure was effective
District of Columbia (“eligible enti- Under the allocation method, a as of Nov. 8, 2021, and applies to quali-
ties”) to assist homeowners in prevent- homeowner may first allocate HAF fied expenses paid after Jan. 21, 2020.
ing mortgage delinquencies, defaults, payments to qualified expenses that are ■ Rev. Proc. 2021-47
or foreclosures and loss of utility and not qualified housing payment expenses
home energy services. It can help defray before allocating the remaining portion — By Paul Bonner.
mortgage payments; utility and internet of HAF payments to qualified housing
service payments; premiums for home- payment expenses.
owner’s, flood, and mortgage insurance; Under the deduction method, a Carried interest
reporting FAQs posted
and charges for homeowner’s and homeowner may deduct as qualified
similar associations, among other ex- mortgage interest expenses or qualified
penses. The money may be paid directly real property tax expenses the lesser of Guidance includes sample
to homeowners or to lenders or other (1) the sum of payments the homeowner worksheets and instructions for
qualified third parties on homeowners’ actually makes to the homeowner’s applicable passthrough entities
behalf. ARPA made nearly $10 billion mortgage servicer during a tax year and taxpayers.
in HAF money available for federal between 2021 through 2025 for qualified
fiscal years 2021 through 2025. For housing payment expenses from the In News Release IR-2021-215 and
more information about the program, homeowner’s own sources, or (2) the a webpage answering frequently asked
see Treasury’s HAF webpage. sum of those qualified expenses shown questions (FAQs), the IRS provided
Some of these qualified expenses are on a Form 1098, Mortgage Interest State- guidance to passthrough entities on
also generally claimable by homeowner- ment, issued to the homeowner. filing requirements and reporting and to
taxpayers as itemized deductions
on their returns (“qualified housing Information reporting
payment expenses”). However, under Under the revenue procedure, eligible
Sec. 139(h), no deduction or credit is entities making HAF payments of
allowed for, or by reason of, any quali- $600 or more during a tax year to, or
fied disaster relief payment or qualified on behalf of, a homeowner do not have
disaster mitigation payment, which to report them to the homeowner (and IMAGE BY DA-VOODA/ISTOCK
includes HAF payments, to the extent the IRS) on Form 1099-MISC, Miscel-
that the payment is excluded from gross laneous Information. However, HAF
income under Sec. 139(a). payments they make directly to third

34 | Journal of Accountancy February 2022