QUESTION: I just got the year-end notification from my bank spelling out how much interest I paid on my mortgage last year. Despite their assurances that I could prepay some interest on the loan and not run into any bookkeeping nightmares as a result, there is no record of the prepaid interest on the bank statement. If I take as a tax write-off the interest expenses I really had instead of those the bank said I had, am I subjecting myself to an Internal Revenue Service audit?--C. P.
ANSWER: Probably not. Banks and other financial institutions that collect interest on mortgages are required to provide an annual accounting of all interest payments they receive--both to the government and to the person who made the interest payments.
But this is a rather new reporting rule. And it has taken many financial institutions much longer to comply with the new rules than the government anticipated.
In their rush to comply, some institutions set up their computers to report only what the IRS requires them to report--that is, interest payments actually due during the year. Not included in that figure are such things as prepaid interest and what are known as points--an amount a borrower pays up front to get a loan. Both are deductible on your tax return.