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 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 principal and 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.