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Where do I enter income from mortgage based securities reported on a 1099-B?

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Level 3
 
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14 Replies 14
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Level 15

1099B relates to sales of investments.  Those get entered on schedule D in ProSeries.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
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Level 3

I know that's where they usually go, but I wanted to check on these:

They are Fanny May mortgage based securities and the income has nothing to do with sales of stocks or bonds. They are payments made to the taxpayer when the mortgage's payments (on their principle) are made.

So there is no indication of any of them being short or long term and there is 0 basis listed for all the transactions.

Any thoughts about those?

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Level 15
Level 15

How is it shown on the 1099B?  is it listed as gross proceeds? 


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Level 3

Yes

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Level 15

You are looking at return of principal.  Most of the time, the principal amounts being paid are close to the cost basis.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
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Level 3

that's what I was thinking at first, but I called the Security company - Hilltop Securities - and they said that there was no sale made (so no basis) and that the "principal payment" notation referred to the fact that the revenue came from people paying down the principal of their mortgage.

What do you think?

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Level 15

But the payments are usually reported on the 1099B.  Unless you are dealing with huge dollars, report it as a sale with cost equal to selling price.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
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Level 3

It's many thousands of dollars. About $30,000 for one year.

And it doesn't seem right to enter the basis equal to the proceeds because what actually seems to have happened is that the income was paid to tp without any sale happening. So he didn't buy anything to sell, he just made that income. Therefore it seems like the total amount of the proceeds is the gain.

I'm posting here because I'm hoping this isn't true.  I would need to know why it isn't true.

Thanks, Ky

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Level 15

He bought some loans.  He is now collecting principal and interest on those loans.  The interest should be getting reported on a 1099 and the principal collections on a 1099B.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
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Level 3

Are you saying that he paid for the loans for the same amount as the principal that he is now collecting and therefore there is no gain (other than the interest that is reported on a 1099-INT or 1099-DIV) ?

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Level 15
Level 15

Have the client call the broker for the missing piece to the puzzle.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Level 3

I talked to the broker myself and that's where I learned that there is no basis for this income because of the reasons stated above. It could be possible that I talked to someone who didn't really understand the situation though. Maybe I should try again.

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Level 15

You talked to someone that didn't know what day it is.  Your client should find a new broker if that is what they told you. The sales price is going to equal the cost basis give or take a couple of bucks for any amortization factored in to the equation.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
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Level 3

Well Gang,

  Our friend at the brokerage worked hard today and got me the information I needed. It's not "no basis" and it's not "full proceeds = basis." It depends on whether the "bonds" were purchased at a premium (higher than par value) or at a discount (lower than par value). This could result in a tax advantage to the tp.

   I'm still sorting through all this and it's 5:00 now, so I'm write more when I get it straight. There is a good web site and specific page for this if you want to check it out.

http://costbasis.com/gnmas.html

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