How to Report Form 1098-MA on Your Tax Return

Receiving government assistance for your mortgage introduces new considerations for your annual tax filing. State and local housing finance agencies issue Form 1098-MA, Mortgage Assistance Payments, to homeowners who have received aid through programs like the Hardest Hit Fund. This form details the payments made on your behalf and directly impacts the mortgage interest deduction you can claim on your federal tax return.

Understanding Your Form 1098-MA

Form 1098-MA is an informational document provided to you and the IRS that details the mortgage assistance you received. You do not file this form with your tax return; instead, you use it to correctly calculate your deductions and should keep a copy for your records. It contains figures in designated boxes that break down payments made toward your home loan.

The boxes on the form provide a financial summary. Box 1 shows the total mortgage payments made, which includes both assistance from the state housing finance agency (HFA) and any payments you made to the HFA. Box 2 isolates the assistance payments made by the HFA on your behalf. Box 3 reports the total payments you paid to the HFA.

Mortgage assistance payments reported on Form 1098-MA are not considered taxable income. While the aid itself is not taxed, it does reduce the amount of deductible mortgage interest you can claim because you can only deduct interest you personally paid.

Calculating Your Deductible Mortgage Interest

To determine your mortgage interest deduction, you will need two documents: Form 1098-MA from the housing agency and the standard Form 1098, Mortgage Interest Statement, from your mortgage lender. The calculation involves subtracting the assistance from the total interest paid to ensure you only deduct the amount you are entitled to claim.

You begin with the total mortgage interest paid for the year, which is found in Box 1 of your lender-issued Form 1098. From this amount, you must subtract the mortgage assistance payments that were applied to interest. The IRS allows a simplified method for this, detailed in Publication 530, Tax Information for Homeowners.

Under this safe harbor method, you determine your deduction by taking the total interest reported by your lender and subtracting the assistance payments you received. For example, if your Form 1098 shows $10,000 in mortgage interest and your Form 1098-MA shows you received $4,000 in assistance, your deduction is reduced by that assistance amount.

As a specific example, suppose your lender’s Form 1098 reports $12,000 of mortgage interest paid. You also receive a Form 1098-MA showing the HFA made $3,000 of payments on your behalf (Box 2). To find your deductible amount, you subtract the assistance from the total interest: $12,000 – $3,000 = $9,000. This is the amount of mortgage interest you can deduct.

How to Report on Your Tax Return

Once you have calculated the deductible mortgage interest, the final step is to report it on Schedule A (Form 1040), Itemized Deductions. Taxpayers who claim the standard deduction cannot deduct mortgage interest. The figure you report is the net amount after subtracting the assistance payments.

You will enter the final calculated number on the line for home mortgage interest, which is line 8a of Schedule A. When you have a Form 1098-MA, you must report the reduced, calculated figure. Remember that the form itself is not filed with your return, and the assistance payments are not reported as income.