Tax 1098 reports the total amount of interest paid on a mortgage during the previous year. Taxpayers use it to calculate the size of the mortgage interest deduction they can take, if any, for that tax year.
This guide contains everything you need to know about the 1098 tax form ranging from its uses to how to file form 1098.
What Is Tax 1098 Form?
Tax 1098 Form is an Internal Revenue Service (IRS) form that is used by taxpayers to report the amount of interest and related expenses paid on a mortgage during the tax year when the amount totals $600 or more.
Related expenses usually include points paid on the purchase of the property. Points refer to prepaid interest made on a home loan to enhance the rate on the mortgage offered by the lending institution.
Here are the two purposes of Form 1098 as stated by investopedia:
- Lenders can use it to report interest payments in excess of $600 they received for the year. The IRS collects this information to ensure proper financial reporting for lenders and other entities that receive interest payments.
- Homeowners use it to determine the total amount of interest they paid for the year when figuring their mortgage interest deduction for their annual tax returns.
Who Can File Form 1098: Mortgage Interest Statement?
If you spent $600 or more in interest and points on a mortgage in the preceding year, your lender is required to send you Form 1098. You will not receive Form 1098 if you paid less than $600. These expenses can be deducted from taxable income and the total amount payable to the IRS on Schedule A, a federal income tax form. The lender—or other entity receiving the interest—issues and mails Form 1098 to you, the borrower.
The mortgage lender is ideally required by the IRS to provide Form 1098 to you if your property is considered real property. Real property refers to land and anything that is built on, grown on, or attached to the land.
The said property for which the mortgage interest payments must meet IRS standards, which define a home as a space that has basic living amenities: cooking and bathroom facilities and a sleeping area. Houses, condominiums, mobile homes, boats, cooperatives, and house trailers all qualify as a home according to the IRS.
Lastly, the mortgage itself must be qualified. According to the IRS, qualified mortgages include first and second mortgages, home equity loans, and refinanced mortgages.
You can visit irs.gov for more details on who can file for Form 1098.
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Special Instructions On When To Use Tax 1098 Form
You are to use Form 1098, Mortgage Interest Statement, to report mortgage interest (including points, defined later) of $600 or more you received during the year in the course of your trade or business from an individual, including a sole proprietor. Report only interest on a mortgage, defined later.
Afterward, file a separate Form 1098 for each mortgage. The $600 threshold applies separately to each mortgage, so you are not expected to file Form 1098 for a mortgage on which you have received less than $600 in interest, even if an individual paid you over $600 in total on multiple mortgages. You may, at your own time, file Form 1098 to report mortgage interest of less than $600, but if you do, you are subject to the rules in these instructions.
If an overpayment of interest on an adjustable-rate mortgage or other mortgage was made previously and you refund (or credit) that overpayment, you may have to file Form 1098 to report the refund (or credit) of the overpayment.
Also use Form 1098 to report mortgage insurance premiums (MIP) of $600 or more you received during the calendar year in the course of your trade or business from an individual, including a sole proprietor, but only if section 163(h)(3)(E) applies.
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When Might A Mortgage Lender Not Provide Form 1098?
According to turbotax.intuit.com, lenders do not have to provide a Form 1098 if they received less than $600 in interest, mortgage insurance premiums, or points during the year. Additionally, interest obtained from a corporation, partnership, trust, estate, association, or company (other than a sole proprietor) does not require filing a Form 1098.
Moreso, if you bought a property with owner financing, the seller might not file a Form 1098. Regardless of why you may not have received a Form 1098, you typically can still deduct qualifying mortgage interest.
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Rules for Deducting Mortgage Interest
Here are a few rules to know about deducting mortgage interest.
- You must be the primary borrower and be making payments on the loan.
- You’re limited to deducting interest on total mortgage debt of $750,000 or less, if the debt originated on or after Dec. 16, 2017. (The limit for older mortgage debt is $1 million.)
If all of these apply to you, then you would need Form 1098 to subtract the mortgage interest you paid for your home loan for the current tax year. If you have more than one qualified mortgage, then you will receive a separate Form 1098 for each one.
How To File Form 1098: Mortgage Interest Deduction
Because the information on Form 1098 has already been sent to the IRS, taxpayers do not need to include it with their tax returns. If a taxpayer wants to deduct their mortgage payments, they should use the information on Form 1098. To file your tax return electronically, you’ll need to copy and paste the information from the form into the proper places on your tax return to record your interest deduction.
If this is your first time of receiving a Form 1098, you may wonder how to make sense of it. There are 11 boxes to take note of when checking your statement.
- Box 1: This box species mortgage interest received from the borrower. It shows how much interest you paid to your lender for the year.
- Box 2: Outstanding mortgage principal. This box indicates how much is owed on the principal of the loan.
- Box 3: Mortgage origination date. The third box shows the date when your mortgage originated.
- Box 4: Refund of overpaid interest. If you overpaid mortgage interest that was refunded, it would be itemized in box 4.
- Box 5: Mortgage insurance premiums. If you’re paying private mortgage insurance or mortgage insurance premiums for the loan, those amounts are stated in Box 5.
- Box 6: Points paid on the purchase of the principal residence. This box shows mortgage points you may be able to deduct.
- Boxes 7 through 11. These include information about the mortgage and the property itself.
When reviewing Form 1098, it’s important to confirm that all of your personal information, including your name, address, and tax identification number, is accurate.
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Other 1098 Tax Forms
Form 1098: Mortgage Interest Deduction is one of four forms that includes the number 1098. All 1098 forms are related to deductions. The three other types of Form 1098 are Form 1098-C, Form 1098-E, and Form 1098-T.
Form 1098-C
Donations of automobiles, yachts, and airplanes to charity organizations that give the vehicles to the needy or sell them at a discount are detailed on Form 1098-C. It comprises the date of donation, kind of car, vehicle identifying number (VIN), and value of the vehicle, and is submitted and reported by the recipient organization.
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Form 1098-E
Form 1098-E reports the interest paid on eligible student loans during the tax year. The interest paid can be deducted by the taxpayer, who will receive the form stating how much interest was paid that year. It is sent by the lending institution if at least $600 was paid in interest, although the taxpayer may get a form for sums less than $600.
Form 1098-T
Form 1098-T provides information about post-secondary tuition and related fees during the year. It is filed by the educational institution and can be used to calculate education-related tax deductions and credits, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The form also states any scholarships and grants received through the school that may reduce the taxpayer’s allowable deduction or credit.
FAQs On Tax 1098 Form
Use Form 1098 (Info Copy Only) to report mortgage interest of $600 or more received by you during the year in the course of your trade or business from an individual, including a sole proprietor.
Your mortgage lender sends your Form 1098 to you, generally by the end of January of the filing year.
No, you don’t have to actually file Form 1098—that is, submit it with your tax return. You only have to indicate the amount of interest reported by the form. And you generally only report this interest if you are itemizing deductions on your tax return.
All interest you pay on your home’s mortgage is fully deductible on your tax return.
Conclusion
For the latest reports about developments related to Form 1098 and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form1098.
References
- turbotax.intuit.com – A Guide to the 1098 Form and Your Taxes
- investopedia.com – Form 1098: Mortgage Interest Statement
- irs.gov – About Form 1098, Mortgage Interest Statement
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