What Is Form 1098: Mortgage Interest Statement?
Form 1098 is a form filed with the Internal Revenue Service (IRS) that details the amount of
interest and related expenses paid on a mortgage during the tax year. These expenses can be used
as deductions on a U.S. income tax form,
Schedule A
, which reduces
personal taxable income
and the
overall amount owed to the IRS.
Form 1098 is used to report interest payments made by an individual or
sole proprietor
to the
government for tax purposes. The form is issued by the lender or other entity receiving the
interest to the borrower who can use the information to deduct the interest paid from his or her
taxable income.
Who Can File Form 1098: Mortgage Interest Statement?
A mortgage is a loan taken out to purchase and secure a real estate property, usually a home. The
borrower usually is mandated to make monthly payments to the lender; monthly payments typically
include the principaland the interest on the loan. The interest payments made on a mortgage can be claimed as
tax deduction on the borrower’s federal income tax return on a form called Mortgage Interest Statement—Form 1098. A tax
deduction helps to reduce the taxable income of a taxpayer. For example, a single taxpayer who
earned $65,000 in a given tax year and qualifies for a $5,000 tax deduction would be effectively
taxed on $60,000 ($65,000 - $5,000), instead of $65,000.
The mortgage lender is required by the Internal Revenue Service (IRS) to provide this form to
borrowers if the property that secures the mortgage is considered real property, that is,
land and anything that is built on, grown on, or attached to the land. The home for which the
mortgage interest payments are made must be qualified by IRS standards. The IRS defines a home as
a space that has basic living amenities including cooking facilities, bathroom, and sleeping area.
Examples include a house, condominium, mobile home, yacht, co-operative, ranch, and boat. Also,
the mortgage itself must be qualified; qualified mortgages, according to the IRS, include first and second mortgages,
home equity loans, and refinanced mortgages.
Form 1098: Mortgage Interest Statement reports how much an individual or sole proprietor paid
in mortgage interest during the tax year.
How to File Form 1098: Mortgage Interest Statement
An individual or sole proprietor with more than one mortgage will receive multiple 1098 forms
from his or her lending institution that show the total interest paid for each real property.
Although the lender may provide Form 1098 to all real property mortgage owners, only mortgage
holders that paid at least $600 in interest payments qualify for the tax deduction. This means
that, even though the homeowner makes more than $600 in total interest on multiple mortgages
owned, Form 1098 will not be filed for any interest payment below $600 made on a single
mortgage.
For example, an individual with two homes who pays $550 interest on one and $1,250 interest on
the other will have paid in total $1,800 interest. However, Form 1098 will only be filed to report
the interest payment made on the second home. The $550 interest made on the first home can still
be filed using the form, but this is optional. Interest payments made by a
`
trust, estate
,
corporation
, or
partnership
do not need to filed.
Taxpayer who deduct mortgage interest payments need to
itemize their deductions
The total amount of mortgage interest paid in a year can be deducted on Schedule A. Itemized
deductions are only beneficial if their total value is higher than that of the
standard deduction
.
In the tax year 2018, for example, a single homeowner whose itemized deductions, including mortgage
interest payments, equal $10,500 may be better off taking his standard deduction of $12,000
instead (the IRS requires a taxpayer to opt for one method or the other).
A mortgage owner is also able to deduct
points
paid on the purchase of real property. Points refer to interest paid in advance or simply pre-paid
interest made on a home loan to improve the rate on the mortgage offered by the lending
institution.
Taxpayers who are mailing paper versions of their tax returns should accompany their Form 1098
with Form 1096.
Other Versions of Form 1098
Form 1098 is one of four forms with the number 1098 on it. All deal with deductions. The three
other versions of Form 1098 include:
1. 1098-C
Details the
donations
of automobiles, boats, and airplanes to charitable
organizations, which give the vehicles to the needy or sell them at a below-market price. Form 1098-C is filed and reported by the recipient organization and includes the
date of donation, type of vehicle, vehicle identification number (VIN), and value of the vehicle.
2. 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 a Form 1098-E detailing how much interest was paid that year. The form is sent
by the lending institution if at least $600 was paid in interest, although the taxpayer may still
get a form for sums less than $600.
3. 1098-T
Provides information about post-secondary tuition and related fees during the year. Form 1098-T
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 reports any scholarships and grants received through the school that may
reduce the taxpayer’s allowable deduction or credit.
Download Form 1098: Mortgage Interest Statement
Here is a link to a downloadable Form 1098.
Key Takeaways
-
Form 1098 is used to report interest payments made by an individual or sole proprietor to
the government for tax purposes.
-
Only mortgage holders that paid at least $600 in interest payments qualify for the tax
deduction.
- Form 1098 is one of four forms with the number 1098 on it.
Other Interest Deduction Items
A student loan interest deduction is a tax deduction for interest paid on post-secondary
education loans during the tax year in the U.S. Qualified taxpayers aren't required to itemize
other deductions in order to take this one.
Tax Deductible Interest
Tax-deductible interest is a borrowing expense that a taxpayer can claim on a federal or state
tax return to reduce taxable income. Types of interest that are tax deductible include mortgage
interest, mortgage interest for investment properties, student loan interest, and more.
Schedule A
Schedule A is an optional income tax form used by U.S. taxpayers to itemize their deductions,
which can help reduce their federal tax liability.
