Loans > Loan Screens > Account Information Screen Group > Account Detail Screen > Statistics tab > Current & Prior Year-to-Date tab

Prepaid interest occurs when the borrower pays more interest during the year than allowed by the IRS.

The IRS 1098 regulation states:

Report prepaid interest (other than points) only in the year in which it properly accrues. For example, interest received on December 20, 2009, that accrues by December 31 but is not due until February 1, 2010, is reportable on the 2009 Form 1098.

Exception-Interest received during the current year that will properly accrue in full by January 15 of the following year may be considered received in the current year, at your option, and is reportable on Form 1098 for the current year. However, if any part of an interest payment accrues after January 15, then only the amount that properly accrues by December 31 of the current year is reportable on Form 1098 for the current year. For example, if you receive a payment of interest that accrues for the period December 20 through January 20, you cannot report any of the interest that accrues after December 31 for the current year. You must report the interest that accrues after December 31 on Form 1098 for the following year.

Based on the IRS regulation, interest "paid, but not accrued" for the current year is calculated at year-end and placed in the Prepaid For column on the Current & Prior Year-to-Date tab. Interest prepaid in the current year for the next year is subtracted from interest for that year and added to Interest paid the following year.

Loans that are prepaid more than one year in advance will cause some special handling. For more explanation, see the Number of Days column description.

As there are not enough fields to store more than one year of prepayments, you will need to provide a corrected 1098 statement to the borrower for any year beyond the current year and one additional year.

Example: In 2009, the borrower has paid all the 2009 and 2010 payments and six of the 2011 payments (interest is paid in arrears). The 1098 for 2009 will be correct (reports all 2009 and January 2010 payments). The 1098 for 2010 will also be correct (reports February 2010 through January 2011). The 2011 1098 will not be correct and you will need to file a corrected 1098.