n-17-40.pdf

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Extension of Guidance in Notice 2015-77 for Participants in the HFA Hardest Hit Fund

Notice 2017-40

PURPOSE
This notice amplifies Notice 2015-77, 2015-47 I.R.B. 676, with respect to the
Treasury Department’s Housing Finance Agency Innovation Fund for the Hardest-Hit
Housing Markets (HFA Hardest Hit Fund) by extending through taxable year 2021 the
safe harbor method for computing a homeowner’s deduction for payments made on a
home mortgage and the relief for mortgage servicers and state housing finance
agencies (State HFAs) from penalties relating to information reporting. In addition, this
notice amplifies Rev. Proc. 2011-55, 2011-47 I.R.B. 793, by extending its scope and
effective date through calendar year 2021 for the HFA Hardest Hit Fund.
BACKGROUND
Notice 2015-77 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 programs designed by State HFAs (State Programs) with
funds allocated from the HFA Hardest Hit Fund. An updated list of State Programs for
which the Treasury Department approves funding is available at

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www.treasury.gov/HHF
. All of these programs are covered by Rev. Proc. 2011-55 and
this notice.
Rev. Proc. 2011-55, as amplified by Notice 2013-7, 2013-6 I.R.B. 477, and Notice
2015-77, specifies the IRS office to which State HFAs should send the statement
required by Notice 2015-77, and provides that State HFAs may, at their option, use
Form 1098-MA, Mortgage Assistance Payments, to provide the information required by
that notice. Rev. Proc. 2011-55 applies to State HFAs that make payments to mortgage
servicers under a State Program. Notice 2015-77 extends the effective date of Rev.
Proc. 2011-55 through 2017.
APPLICATION
Income Tax Consequences to Homeowners
For taxable years 2010 through 2021, 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 or the State HFA; and
• the sum of amounts shown on Form 1098, Mortgage Interest Statement, for
mortgage interest received, real property taxes, and mortgage insurance
premiums (if deductible for the taxable year under § 163(h)(3)(E)).
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

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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.
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 during
calendar years 2011 through 2021 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 2021 if the
State HFA provides each homeowner and the IRS a statement setting forth (1) the
homeowner’s name and taxpayer identification number (TIN), and (2) the amount of
payments the State HFA made to the mortgage servicer under the State Program
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.
For calendar years 2011 through 2021, State HFAs may, at their option, use Form
1098-MA in accordance with Rev. Proc. 2011-55 to provide the information described in
the preceding paragraph instead of filing a single statement for the calendar year.

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EFFECT ON OTHER DOCUMENTS
(1) Notice 2015-77 is amplified with respect to the HFA Hardest Hit Fund 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 taxable year
2021, and (b) information reporting for those payments through calendar year 2021.
(2) Rev. Proc. 2011-55 is amplified by extending its scope and effective date through
calendar year 2021 for the HFA Hardest Hit Fund.
DRAFTING INFORMATION
The principal author of this notice is Suzanne R. Sinno of the Office of Associate
Chief Counsel (Income Tax and Accounting). For further information regarding this
notice, contact Ms. Sinno (202) 317-4718 (not a toll-free number).