How to Report Mortgage Interest Received From a Borrower

Receiving interest payments on a mortgage you’ve provided can be a steady source of income. When a borrower makes these payments to you, the interest portion is considered taxable income. Understanding your obligations for reporting this income to both the borrower and the Internal Revenue Service (IRS) is a fundamental part of the lending process.

Information Required for Reporting

If you are engaged in a trade or business of lending money and receive $600 or more in mortgage interest from an individual during a calendar year, you must report these payments. This rule applies to each distinct mortgage; if one borrower has multiple loans with you, the $600 threshold is assessed separately for each loan. You must gather specific information from the borrower, including their Taxpayer Identification Number (TIN), which is typically their Social Security Number.

The primary document for this process is Form 1098, Mortgage Interest Statement. To complete it accurately, you will need the borrower’s full name and address, along with your own name, address, and TIN. The form requires financial details about the loan, including the total interest received during the year in Box 1. This amount includes standard monthly interest and can also include points paid by the borrower.

Other data points for Form 1098 include the outstanding mortgage principal as of the beginning of the year (Box 2) and the mortgage origination date (Box 3). If you received points paid on the purchase of the borrower’s principal residence, this amount is reported in Box 6. You must obtain the official, scannable version of Form 1098 from the IRS or an authorized provider, as photocopies are not acceptable for filing.

Providing Form 1098 to the Borrower and Filing with the IRS

You must furnish a copy of Form 1098 (Copy B) to the borrower by January 31 of the year following the calendar year the interest was received. This deadline gives the borrower the information they need to file their own tax return, as the interest they paid may be deductible for them. This copy can be mailed to the borrower’s last known address.

You must also file a copy of the form (Copy A) with the IRS. The deadline for this submission depends on your filing method. If filing by mail, the forms must be sent by February 28. When paper filing, you must also include Form 1096, Annual Summary and Transmittal of U.S. Information Returns. For those filing electronically, the deadline is extended to March 31.

Electronic filing is done through systems like the IRS’s Filing Information Returns Electronically (FIRE) or the newer Information Reporting Intake System (IRIS). If you are required to file 10 or more information returns of any type in a calendar year, you must file them electronically. After a successful electronic submission, you will receive a confirmation from the IRS.

Reporting Interest Income on Your Tax Return

Filing Form 1098 informs the IRS and the borrower about the interest paid, but it does not fulfill your personal obligation to report that money as income on your own annual tax return. The schedule you use to report the interest income depends on whether you are in the business of lending money.

For an individual who provided a loan as an investment or personal arrangement, but not as a primary business activity, the interest income is reported on Schedule B (Form 1040), Interest and Ordinary Dividends. The total interest received is listed here and then included in your adjusted gross income for the year.

If you are in the business of lending, the interest you receive is considered business income. You would report the total mortgage interest received on Schedule C (Form 1040), Profit or Loss from Business. The interest is included as part of your gross receipts or sales, and you can deduct related business expenses on the same schedule.