n-13-07.pdf

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Extension of Guidance in Notice 2011-14 and Rev. Proc. 2011-55 for Participants in the
HFA Hardest Hit Fund, the Emergency Homeowners’ Loan Program, and Substantially
Similar State Programs

Notice 2013-7

PURPOSE
This notice amplifies Notice 2011-14, 2011-11 I.R.B. 544, by extending through
taxable year 2015 the safe harbor method for computing a homeowner’s deduction for
payments made on a home mortgage. This notice also amplifies Notice 2011-14 by
extending through calendar year 2015 the relief for mortgage servicers and state
housing finance agencies (State HFAs) from penalties relating to information reporting,
and by advising the Department of Housing and Urban Development (HUD) that it may
rely on Notice 2011-14 through calendar year 2015 to report to homeowners and the
Internal Revenue Service the payments it makes to mortgage servicers. In addition, this
notice amplifies Notice 2011-14 by revising the safe harbor method for computing a
homeowner’s deduction because of the extension of the deduction for mortgage
insurance premiums that was enacted by section 204 of the American Taxpayer Relief
Act of 2012, Pub. L. No. 112-240, 126 Stat. 2313 (ATRA).
This notice also amplifies Rev. Proc. 2011-55, 2011-47 I.R.B. 793, by extending
its scope and effective date through calendar year 2015.
Finally, this notice supplements Notice 2011-14 and Rev. Proc. 2011-55 by
updating the list of housing programs to which Notice 2011-14 and Rev. Proc. 2011-55
apply.

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BACKGROUND
Notice 2011-14 provides guidance on the federal income tax consequences of,
and information reporting obligations for, payments made to or on behalf of financially
distressed homeowners under (1) programs designed by State HFAs (State Programs)
with funds allocated from the Treasury Department’s Housing Finance Agency
Innovation Fund for the Hardest-Hit Housing Markets (HFA Hardest Hit Fund), and
(2) HUD’s Emergency Homeowners’ Loan Program (EHLP) and any existing state
program that is substantially similar to the EHLP and is eligible to administer an
allocation of funds from the EHLP (the substantially similar state programs, or SSSPs).
The Appendix in Notice 2011-14 lists all of the State Programs that, as of the
date Notice 2011-14 was released, the Treasury Department had approved for funding
from the HFA Hardest Hit Fund. Subsequent to the publication of Notice 2011-14, the
Treasury Department continues to approve funding for additional State Programs. An
updated list of State Programs for which the Treasury Department approves funding is
available at www.treasury.gov/HHF
. All of these programs are covered by Notice 2011-
14, Rev. Proc. 2011-55, and this notice.
For taxable years 2010, 2011, and 2012, Notice 2011-14 provides a safe harbor
method for determining the amount that a homeowner may deduct on his or her federal
income tax return. Under the safe harbor method, a homeowner may deduct the sum of
all payments the homeowner actually makes during a taxable year to the mortgage
servicer, HUD, or the State HFA on the home mortgage, but not in excess of the sum of
the amounts shown on Form 1098 in box 1 (Mortgage interest received), box 4

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(Mortgage insurance premiums) for years 2010 and 2011 only, and box 5 (real property
taxes). This safe harbor method of computing the homeowner’s deduction applies for a
taxable year if (1) the homeowner meets the requirements of §§ 163 and 164 to deduct
all of the mortgage interest on the loan and all of the real property taxes on the principal
residence, and (2) the homeowner participates in a State Program described in the
Appendix to Notice 2011-14 in which the program payments could be used to pay
interest on the home mortgage, or in the EHLP or an SSSP.
Section 204(a) of ATRA provides that § 163(h)(3)(E)(iv)(I) of the Internal
Revenue Code is amended by striking December 31, 2011, and inserting in its place
December 31, 2013. The effect of this amendment is to extend the deduction for
qualified mortgage insurance premiums paid or accrued in, or properly allocable to,
years 2012 and 2013.
Notice 2011-14 provides that the Service will not assert penalties under §§ 6721
and 6722 of the Code against a mortgage servicer that reports on Forms 1098,
Mortgage Interest Statement, payments received under a State Program, the EHLP, or
an SSSP during calendar years 2011 or 2012 if the servicer notifies homeowners that
the amounts reported on the Forms 1098 are overstated because they include
government subsidy payments.
Notice 2011-14 also provides that the Service will not assert penalties under
§§ 6721 and 6722 against any State HFA for failing to file and furnish Forms 1098 for
calendar years 2011 and 2012 if the State HFA provides each homeowner and the IRS
a statement setting forth (1) the homeowner’s name and taxpayer identification number

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(TIN), and (2) the amount of payments the State HFA made to a mortgage servicer
under the State Program or the SSSP during that year (separately stating the amount
the State HFA paid and the amount the homeowner paid). The statement the State
HFA provides to the IRS must be a single statement that separately lists the names,
TINs, and relevant payment amounts for each homeowner.
For calendar years 2011 and 2012, Notice 2011-14 advises HUD to provide each
homeowner and the IRS a statement setting forth (1) the homeowner’s name and TIN,
and (2) the amount of payments HUD made to the mortgage servicer under the EHLP
during that year (separately stating the amount HUD paid and the amount the
homeowner paid). The statement HUD provides to the IRS should be a single
statement that separately lists the names, TINs, and relevant payment amounts for
each homeowner.
Rev. Proc. 2011-55 modifies Notice 2011-14 to specify the IRS office to which
State HFAs and HUD should send the statement required by Notice 2011-14, and
provides that State HFAs and HUD may, at their option, use Form 1098-MA, Mortgage
Assistance Payments, to provide the information required by Notice 2011-14.
Rev. Proc. 2011-55 is effective for calendar years 2011 and 2012 and applies to
(1) State HFAs that make payments to mortgage servicers under a State Program or an
SSSP, and (2) HUD for payments made to mortgage servicers under the EHLP.

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APPLICATION
Income Tax Consequences to Homeowners
For taxable years 2010 through 2015, a homeowner may deduct on his or her
Federal income tax return the lesser of—
• The sum of all payments on the home mortgage that the homeowner
actually makes during a taxable year to the mortgage servicer, HUD, or
the State HFA; and
• The sum of amounts shown on Form 1098 for mortgage interest received,
real property taxes, and (for years 2010 through 2013 only) mortgage
insurance premiums. (For Forms 1098 issued for 2010 and 2011,
mortgage servicers report these amounts in Box 4 (Mortgage insurance
premiums). On Form 1098 for 2012, Box 4 is unlabeled, but, pursuant to
instructions, mortgage servicers should again report these amounts in Box
4.)
This safe harbor method of computing the homeowner’s deduction applies for a taxable
year if (1) the homeowner meets the requirements of §§ 163 and 164 to deduct all of the
mortgage interest on the loan and all of the real property taxes on the principal
residence, and (2) the homeowner participates in a State Program in which the program
payments could be used to pay interest on the home mortgage, or the EHLP or an
SSSP.

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Information Reporting Obligations
The Service will not assert penalties under §§ 6721 and 6722 against a mortgage
servicer that reports on Forms 1098 payments received under a State Program, the
EHLP, or an SSSP during calendar years 2011 through 2015 if the servicer notifies
homeowners that the amounts reported on the Form 1098 are overstated because they
include government subsidy payments.
The Service will not assert penalties under §§ 6721 and 6722 against any State
HFA for failing to file and furnish Forms 1098 for calendar years 2011 through 2015 if
the State HFA provides each homeowner and the IRS a statement setting forth (1) the
homeowner’s name and TIN, and (2) the amount of payments the State HFA made to
the mortgage servicer under the State Program or the SSSP during that year
(separately stating the amount the State HFA paid and the amount the homeowner
paid). Except as provided in Rev. Proc. 2011-55 regarding use of Form 1098-MA, the
statement the State HFA provides to the IRS must be a single statement that separately
lists the names, TINs, and relevant payment amounts for each homeowner.
In addition, for calendar years 2011 through 2015, HUD should provide each
homeowner and the IRS a statement setting forth (1) the homeowner’s name and TIN,
and (2) the amount of payments HUD made to the mortgage servicer under the EHLP
during that year (separately stating the amount HUD paid and the amount the
homeowner paid). Except as provided in Rev. Proc. 2011-55, the statement HUD
provides to the IRS should be a single statement that separately lists the names, TINs,
and relevant payment amounts for each homeowner.

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For calendar years 2011 through 2015, State HFAs and HUD may, at their
option, use Form 1098-MA in accordance with Rev. Proc. 2011-55 to provide the
information described in Notice 2011-14 instead of filing a single statement for the
calendar year.
State Programs
The State Programs to which Notice 2011–14, Rev. Proc. 2011–55, and this
notice apply are listed at www.treasury.gov/HHF. This list includes all of the State
Programs that appeared in the Appendix to Notice 2011-14 as well as any additional
programs that the Treasury Department has approved for funding from the HFA Hardest
Hit Fund.

EFFECT ON OTHER DOCUMENTS
(1) Notice 2011-14 is amplified by extending the guidance relating to (a) the
safe harbor method for computing a homeowner’s deduction for payments made on a
home mortgage through the taxable year 2015, and (b) information reporting for those
payments through the calendar year 2015. Notice 2011-14 also is amplified by revising
the safe harbor method for computing a homeowner’s deduction to include mortgage
insurance premiums paid or accrued for years 2012 and 2013.
(2) Rev. Proc. 2011-55 is amplified by extending its scope and effective date
through calendar year 2015.
(3) Notice 2011-14 and Rev. Proc. 2011-55 are supplemented by identifying
additional State Programs to which the notice and revenue procedure apply.

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DRAFTING INFORMATION
The principal author of this notice is Shareen S. Pflanz of the Office of Associate
Chief Counsel (Income Tax & Accounting). For further information regarding this notice,
contact Shareen S. Pflanz at (202) 622-4920 (not a toll-free call).