What Is Form 1098: Mortgage Interest Statement?
Form 1098, Mortgage Interest Statement, is an Internal Revenue Service (IRS) form 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 include points paid on the purchase of the property. Points are prepaid interest made on a home loan to improve the rate on the mortgage offered by the lending institution.
Form 1098 serves two purposes:
- Lenders 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 out their mortgage interest deduction for their annual tax returns.
- Form 1098 is used to report mortgage interest paid for the year.
- Lenders must issue Form 1098 when a homeowner has paid $600 or more in mortgage interest during the tax year.
- To deduct mortgage interest, you must be the primary borrower on the loan and actively make payments.
- If you are itemizing your deductions and plan to claim a mortgage interest deduction, Form 1098 helps you calculate the amount of your mortgage payments that have gone towards interest.
- Other 1098 tax forms include Form 1098-C (charitable contributions), Form 1098-T (credit for education payments), and Form 1098-E (student loan interest payments).
Who Receives Form 1098?
Your lender is required to send Form 1098 to you if you paid $600 or more for the previous year in interest and points on a mortgage. If you paid less than $600, you will not receive Form 1098. You can deduct these expenses on a federal income tax form, Schedule A, which reduces taxable income and the overall amount owed to the IRS. Form 1098 is issued and mailed by the lender—or other entity receiving the interest—to you, the borrower.
The IRS also requires the mortgage lender to provide Form 1098 to you if your property is considered real property. Real property is land and anything built on, grown on, or attached to the land.
Rules for Deducting Mortgage Interest
If you pay mortgage interest on a property, it must meet the IRS standards of a home to be deductible. These standards define a home as a space with basic living amenities: cooking and bathroom facilities and a sleeping area. Houses, condominiums, mobile homes, boats, cooperatives, and house trailers all qualify as homes.
The mortgage itself must be qualified. According to the IRS, qualified mortgages include first and second mortgages, home equity loans, and refinanced mortgages.
Whether or not you need Form 1098 depends on whether or not you plan to itemize your deductions on the Schedule A Form. Claiming a deduction for mortgage interest paid can reduce your total taxable income. However, there 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, you need Form 1098 to deduct the mortgage interest you paid for your home loan for the current tax year. If you have more than one qualified mortgage, you will receive a separate Form 1098 for each.
How to Claim a Mortgage Interest Deduction
Taxpayers don’t need to include Form 1098 with their tax returns because the information in the form has already been provided to the IRS. Instead, you use the information provided on Form 1098 if you plan to deduct your mortgage payments. If you plan to file your tax return electronically, enter the information from the form into the appropriate boxes on your tax return to record your interest deduction information.
If you’re receiving Form 1098 for the first time, you may wonder how to make sense of it. There are 11 boxes to take note of when reviewing your statement.
- Box 1: Mortgage interest received from the borrower. This box shows how much interest you paid to your lender for the year.
- Box 2: Outstanding mortgage principal. This box shows how much is owed on the principal of the loan.
- Box 3: Mortgage origination date. This shows the date when your mortgage originated.
- Box 4: Refund of overpaid interest. If you overpaid the refunded mortgage interest, it would be listed here.
- Box 5: Mortgage insurance premiums. If you’re paying private mortgage insurance or mortgage insurance premiums for the loan, those amounts are entered here.
- Box 6: Points paid on the purchase of the principal residence. This box shows mortgage points you may be able to deduct.
- Boxes 7 – 11: These boxes include information about the mortgage and the property itself.
When reviewing Form 1098, it’s important to verify that your personal information, including your name, address, and tax identification number, is accurate.
Other 1098 Tax Forms
There are several 1098 forms—they are all related to deductions. The three other versions of Form 1098 are Form 1098-C, Form 1098-E, and Form 1098-T.
Form 1098-C details the donations of automobiles, boats, and airplanes to charitable organizations that give the vehicles to those in need or sell them at a below-market price. It is filed and reported by the recipient organization and includes the date of donation, type of vehicle, vehicle identification number (VIN), and vehicle value.
Form 1098-E reports the interest paid on qualified student loans during the tax year. The interest paid can be deducted by the taxpayer, who will receive the form detailing 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 provides information about post-secondary tuition and related fees during the year. The educational institution files it, and you can use it to calculate education-related tax deductions and credits. Some examples of these credits are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The form also reports any scholarships and grants received through the school that may reduce the taxpayer’s allowable deduction or credit.
Taxpayers who have received assistance from the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest Hit Fund) receive Form 1098-MA, which they can use to report these payments.
What Is a 1098 Tax Form Used for?
Form 1098 reports the total 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.
How Do I Get My 1098 Form?
Your mortgage lender sends your Form 1098 to you, generally by the end of January of the filing year.
Do I Need to File 1098?
No, you don’t have to file Form 1098 or 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.
What Is a 1098 Tax Form From College?
Colleges and universities use Form 1098-T to report payments to students for qualified tuition and other expenses, like scholarships and grants. The educational institution files it with the IRS, and the student receives a copy. Taxpayers use the info on Form 1098-T to claim an education credit on Form 1040 (the tax return).
Does the Parent or Student Claim the 1098-T?
Either can do so (but not both). Generally, it depends on who is actually paying the educational expenses and if the student is still being listed and taken as a dependent on the parent’s tax return. If they are, the parent usually claims the education credit based on the Form 1098-T info.
The Bottom Line
Form 1098: Mortgage Interest Deduction is an IRS form for notifying a borrower how much interest they have paid in one year on a qualified home mortgage. You should receive one in January if you have a mortgage, and are able to claim the interest as a deduction if you itemize your tax return.