IRS Form for Mortgage Interest: Form 1098

Homeowners who pay interest on a mortgage will typically receive a Form 1098, Mortgage Interest Statement, from their lender after the end of the year. This document is an information return sent to both the taxpayer and the IRS. Its primary purpose is to report the total amount of mortgage interest and other related expenses you have paid throughout the tax year. Understanding this form is a starting point for potentially lowering your taxable income, as the interest reported may be deductible.

Decoding Your Form 1098 Mortgage Interest Statement

When you receive Form 1098, you will see several boxes containing specific financial details about your mortgage for the year. Box 1 shows the total mortgage interest you paid to your lender. This figure includes interest on the principal balance of your loan and is the primary number you will use when determining your mortgage interest deduction.

Box 2 reports the outstanding principal on your mortgage at the beginning of the year. This gives you a snapshot of your loan balance before any principal payments made during the reporting year were applied. Box 3 shows the mortgage origination date, which is the day your loan was officially issued. This date can be relevant for determining which set of deduction rules apply, as the limits changed for loans taken out after December 15, 2017.

Some boxes on the form address more specific situations. Box 4, for instance, will show any refund of overpaid interest from a prior year. This amount is important because it may reduce the amount of your deductible interest for the current year.

Box 6 reports any points you paid when you purchased your principal residence. “Points” are a form of prepaid interest, where one point typically equals one percent of the loan amount, paid at closing to reduce the ongoing interest rate.

Claiming the Mortgage Interest Deduction on Your Tax Return

The information on Form 1098 is used to claim the mortgage interest deduction, which is an itemized deduction. This means you must choose to itemize deductions on your tax return instead of taking the standard deduction. You will use Schedule A (Form 1040), Itemized Deductions, to report the deductible amounts. If the total of all your itemized deductions is less than the standard deduction available for your filing status, it is generally more advantageous to take the standard deduction.

To claim the deduction, you will transfer the amount from Box 1 of your Form 1098 to line 8a of Schedule A. For mortgages taken out after December 15, 2017, you can generally only deduct the interest on up to $750,000 of mortgage debt ($375,000 if married filing separately). For mortgages that originated before this date, the limit is higher, at $1 million ($500,000 if married filing separately).

The amount from Box 6 (points) also has specific rules for deduction. Points may be fully deductible in the year paid if certain IRS criteria are met, or they may need to be amortized and deducted over the life of the loan.

The home securing the loan must be a qualified home, which the IRS defines as your main home or a second home. The mortgage itself must be a secured debt, meaning your home is the collateral for the loan.

Addressing Common Form 1098 Issues

You may not receive a Form 1098 from your lender. This typically happens if the interest you paid during the year was less than the $600 mandatory reporting threshold for lenders. If you do not receive a form but believe you are entitled to a deduction, you can find the total interest paid on your year-end mortgage statement or by contacting your lender directly. You are still permitted to deduct the interest you paid, even without a Form 1098.

If you review your Form 1098 and find what you believe to be an error, such as an incorrect interest amount, you should contact your lender immediately. The lender is responsible for issuing a corrected Form 1098 to both you and the IRS. Resolving any discrepancies beforehand is important, as filing with incorrect information can lead to IRS notices.

Homeowners with more than one mortgage will receive a separate Form 1098 for each loan. When itemizing, you will add the interest from Box 1 of each form together and report the total on Schedule A, keeping in mind the total debt limitations.

A different situation arises with seller-financed mortgages, where a traditional lender is not involved. In these cases, you may not receive a Form 1098, but you can still claim the deduction provided you have the seller’s name, address, and Social Security Number or Taxpayer Identification Number.