Accounting firm urges lenders selling MSRs to analyse portfolio for long-term capital gains status

Spiegel Accountancy Corp., an accounting firm servicing the mortgage industry, is reminding mortgage lenders who sell MSRs to do an analysis to determine whether they can report a portion of the sale as long-term capital gains.

“If a lender has maintained the servicing rights for more than 12 months, which is considered long-term, and has a significant portion of those loans in their sale, then they can take a tax position to report a portion of the tax gain as long-term capital gain as opposed to ordinary income,” said Jeff Spiegel, principal at Spiegel Accountancy Corp. “Oftentimes, this will save the lender up to 20% in federal taxes.”

When selling a portfolio, the lender should ensure that it has accurately evaluated the portfolio to take a position to report capital gains, Spiegel Accountancy Corp. said. The firm recommended that lenders do the following to substantiate their capital gain position:

  • Have a “reasonable basis” for capital gain filing position
  • Analyze and document specific facts and circumstances in determining your tax-reporting position
  • Obtain a third-party valuation of MSR portfolios with a separately stated value of “reasonable compensation” based on the specific portfolio, servicing costs and other factors
  • Disclose the tax position on Form 8275

Consider obtaining a tax opinion letter from a qualified law firm supporting your tax position.

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