What Is Form 1098: Mortgage Interest Statement?
Form 1098, also known as the Mortgage Interest Statement, is a crucial document issued by the Internal Revenue Service (IRS) for taxpayers to report the amount of interest and associated expenses paid on a mortgage throughout the tax year if the total exceeds $600. This includes expenses such as points paid during the property purchase, which are essentially prepaid interest aimed at improving the mortgage rate provided by the lending institution.
Form 1098 serves two main purposes:
- Lenders use it to report interest payments exceeding $600 received for the year to ensure accurate financial reporting for both lenders and other entities receiving these payments.
- Homeowners utilize it to calculate the total interest paid during the year for claiming the mortgage interest deduction on their annual tax returns.
Key Takeaways:
- Form 1098 is essential for reporting mortgage interest paid annually.
- Lenders are obligated to issue Form 1098 if a homeowner has paid $600 or more in mortgage interest throughout the tax year.
- To qualify for the mortgage interest deduction, you must be the primary borrower making active payments.
- If itemizing deductions and claiming a mortgage interest deduction, Form 1098 aids in calculating the portion of mortgage payments allocated to interest.
- Other 1098 forms include Form 1098-C (for charitable contributions), Form 1098-T (for education payments), and Form 1098-E (for student loan interest payments).
Who Receives Form 1098?
Your lender is mandated to send you Form 1098 if you have paid $600 or more in interest and points on a mortgage throughout the previous year. If the payments are below $600, you won’t receive Form 1098. These expenses can be deducted on Schedule A of your federal income tax form, reducing your taxable income and overall IRS liability. Form 1098 is sent by the lender, or the entity receiving the interest, to you as the borrower.
Additionally, the IRS demands that mortgage lenders provide Form 1098 to you if your property qualifies as real property, which encompasses land and any structures or crops on or attached to it.
Rules for Deducting Mortgage Interest
To claim a deduction for mortgage interest paid, the property must meet IRS standards as a qualifying home—a space with essential living amenities such as cooking and bathroom facilities, and a sleeping area. Qualifying homes include houses, condominiums, mobile homes, boats, cooperatives, and house trailers.
The mortgage itself must be deemed qualified, with the IRS recognizing qualified mortgages as first and second mortgages, home equity loans, and refinanced mortgages.
The need for Form 1098 depends on whether you plan to itemize deductions on Schedule A. By claiming a deduction for mortgage interest paid, you can lower your total taxable income. However, specific rules apply to deducting mortgage interest:
- You must be the primary borrower and actively make loan payments.
- There are limits on deducting interest on total mortgage debt post-Dec. 16, 2017, with newer debt capped at $750,000 and older debt at $1 million.
If these criteria apply to you, Form 1098 is essential for deducting mortgage interest payments for your home loan during the current tax year. If you have multiple qualified mortgages, you will receive a separate Form 1098 for each.
How to Claim a Mortgage Interest Deduction
Taxpayers do not need to include Form 1098 with their tax returns as the IRS already has this information. Instead, utilize the details on Form 1098 when deducting mortgage payments. If filing electronically, input the information into the relevant sections of your tax return to record your interest deduction data.
For first-time recipients of Form 1098, understanding the document is crucial. There are 11 key boxes to focus on while reviewing your statement.
- Box 1: Mortgage interest received from the borrower, showing the interest paid to the lender annually.
- Box 2: Outstanding mortgage principal, indicating the remaining amount on the loan’s principal.
- Box 3: Mortgage origination date, revealing when the mortgage originated.
- Box 4: Refund of overpaid interest, if any, listed here.
- Box 5: Mortgage insurance premiums, for private mortgage insurance or mortgage insurance premiums.
- Box 6: Points paid on the purchase of the principal residence, which may be deductible.
- Boxes 7 – 11: Additional information about the mortgage and property.
When assessing Form 1098, ensure your personal information, including name, address, and tax identification number, is accurate.
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Other 1098 Tax Forms
Various 1098 forms are available, all interconnected with deductions. Additional versions of Form 1098 include Form 1098-C, Form 1098-E, and Form 1098-T.
Form 1098-C
Form 1098-C delineates donations of automobiles, boats, and airplanes to charitable organizations, either for altruistic purposes or sales at below-market rates. The recipient organization files this form, capturing donation dates, vehicle types, VINs, and values.
Form 1098-E
Form 1098-E reports interest payments on eligible student loans during the tax year. Taxpayers may deduct this interest and receive the form detailing the paid interest amount, sent by the lending institution if over $600 was paid, although forms can be provided for lower sums.
Form 1098-T
Form 1098-T supplies information on post-secondary tuition and associated fees during the year. The educational institution files it, aiding in education-related tax calculations, such as the American Opportunity Tax Credit and the Lifetime Learning Credit. Scholarships and grants received can impact the taxpayer’s allowable deduction or credit.
Form 1098-MA
Recipients of assistance from the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest Hit Fund) receive Form 1098-MA to facilitate reporting these payments.
What Is a 1098 Tax Form Used For?
Form 1098 details the total mortgage interest paid during the preceding year, assisting taxpayers in determining their mortgage interest deduction eligibility for that tax year.
How Do I Get My 1098 Form?
Your mortgage lender typically sends Form 1098 to you by the end of January of the filing year.
Do I Need to File 1098?
No, Form 1098 does not require filing or submission with your tax return. You only need to indicate the interest amount reported by the form, usually when itemizing deductions.
What Is a 1098 Tax Form From College?
Universities and colleges utilize Form 1098-T to report payments to students for qualified tuition and other expenses, including scholarships and grants. This form is filed with the IRS by the educational institution, with students using the information to claim educational credits on their tax return.
Does the Parent or Student Claim the 1098-T?
Either the parent or student can claim the 1098-T, but not both. Typically, the claimant is determined based on who pays the education expenses and if the student is considered a dependent on the parent’s tax return. If the student is a dependent, the parent usually claims the education credit utilizing the information provided on Form 1098-T.
The Bottom Line
Form 1098: Mortgage Interest Deduction is an essential IRS document informing borrowers of the interest paid in a year on a qualifying home mortgage. It is typically sent in January to mortgage holders who can potentially claim the interest as a deduction if itemizing their tax return.