With the Internal Revenue Service digging behind seat cushions looking for extra cash, it’s no surprise that they’re getting more aggressive about taxpayers who pay a lot of mortgage interest but don’t declare a lot of income.
Goodness knows, the federal government needs the money. At a time when the federal deficit stands at $1.4 trillion, federal tax revenues have fallen off a cliff. According to a study by the American Institute for Economic Research, federal tax monies have declined by $138 billion from April 2008 through April 2009. That’s a 34% drop in tax revenues, the AIER reports.
That’s the biggest reason why the IRS is taking a keener interest in your mortgage interest — it might lead them to a nice tax payday unless you’re careful.
Here’s what the IRS is looking for — and what you can do about it:
If you’re a homeowner, every tax season the IRS gets a copy of your mortgage interest statement, also known as IRS form 1098 (your lender sends a copy to you and to the IRS). Form 1098 shows the exact amount of interest you paid on your monthly mortgage for the previous tax year.The number on that tax form is a significant clue to the IRS. Agency computers can “match” the interest deduction that your lender provides with the number on your tax form, using your Social Security number.
By comparing your tax returns with the data your mortgage lender provides, the IRS has had some good luck digging up some loose cash — all at taxpayer expense. According to the U.S. Treasury Inspector General for Taxpayer Administration, the IRS tracked down 227,000 tax returns looking for answers on mortgage deduction discrepancies in 2004 and 2005.