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Are Chapter 13 Payments Tax-Deductible?

Some payments you make under your Chapter 13 bankruptcy plan are tax-deductible, even though it is your bankruptcy trustee who controls your purse strings -- you are still deemed to be the payer. So what are some Chapter 13 tax deductions you may be eligible for?

Find a solution to your tax problems with The Law Offices of Darrin T. Mish, P.A. Contact us online or call (813) 295-7648.

Which Chapter 13 Payments Are Tax-Deductible?

The following payments under Chapter 13 are tax-deductible:

  • Payments toward mortgage interest and/or defaulted mortgage payments
  • Property taxes
  • State income taxes
  • If you are a business owner, certain expenses may be deductible

Continue reading below to learn more!

Mortgage Payments

Payments towards mortgage interest in Chapter 13 bankruptcy and/or defaulted mortgage payments may be deductible. This is because your lender’s filed proof of claim in the bankruptcy case is likely to be interesting on the loan which accrued but was not paid before the case was filed. And the good news is that mortgage interest can be deducted if you itemize deductions.

How To Find The Amount of Mortgage Interest Paid

The problem is that most lenders do not send 1099s reporting mortgage interest paid when the checks come from the trustee. But there is a way around this. Find your trustee’s website and look for the trustee’s report that shows the names of the creditors that have been paid for any tax year.

If you can’t sort the information for disbursements in a given tax year, you can look at the ledger of all disbursements, then flag and add up all the payments to your lender. Since the IRS relies on 1099 forms sent to them, with copies to the taxpayer, they will not have gotten a matching report from the lender who got the money and hasn’t reported it to you and the IRS.

So you should:

  • Obtain a copy of the bank’s proof of claim
  • Print out the trustee’s disbursement records
  • And document them along with a copy of your plan with your supporting tax documents

These documents will enable you to back up your claim for a tax deduction.

About Property Taxes, State Income Tax, and Business Expenses

Another chapter 13 tax-deductible expense is property taxes paid through chapter 13. Likewise, state income taxes paid by the trustee are deductible.

In addition, if you are a business owner in chapter 13 or were running a business before you filed, you may be paying business expenses such as:

  • Leases
  • Sales taxes
  • Or vendor debt through your chapter 13 plan

All these expenses may be tax-deductible.

You should do the same thing as for your mortgage payments to claim your tax deductions for property taxes and business expenses also.

We invite you to schedule a free consultation with our tax relief firm by calling (813) 295-7648 or completing an online form today.

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