Where to Find Points on Form 1098?

Form 1098, issued by lenders, is critical during tax season for homeowners. It details mortgage interest paid over the year and related expenses, such as points, which can affect tax deductions. Understanding where to locate points on Form 1098 is key for accurate deductions.

Where They Appear on Form 1098

Form 1098 includes a section for points paid on a mortgage, often called loan origination fees or discount points. These are typically listed in Box 6, which reports points paid on the purchase of a principal residence. The IRS allows taxpayers to deduct these points in the year they are paid if specific conditions are met, such as the loan being secured by the main home and the points being a percentage of the loan amount. Points paid for refinancing are usually amortized over the loan’s term unless they are used for home improvements.

Other sections of Form 1098, such as Box 1, detail mortgage interest received from the borrower, which is separate from points and has its own deductibility rules. Distinguishing between these sections ensures compliance with IRS regulations and helps maximize tax benefits.

Points vs. Other Charges

It is important to differentiate between points and other mortgage-related charges when reviewing Form 1098. Points, which are deductible under certain IRS conditions, differ from fees like appraisal costs, inspection charges, or title insurance, which are not deductible and are considered closing costs. These fees do not appear in Box 6. Misclassifying these charges could result in an incorrect tax return, potentially leading to audits or penalties.

Missing Points on Your Statement

If points are not listed on your Form 1098, check your closing disclosure or settlement statement, which itemizes all fees and costs. Points should be clearly noted if they were part of the transaction. Discrepancies may occur due to reporting errors or timing differences. If points were paid but not reported, contact your lender to address the issue. They may need to issue a corrected Form 1098 or provide additional documentation. Resolving errors promptly is essential to avoid complications.

Confirming Points With Your Lender

If you notice discrepancies in Form 1098, contact your lender. They are responsible for accurate reporting, and errors can lead to IRS issues. Request a detailed breakdown of the mortgage transaction to verify whether points were properly accounted for. Cross-check this information with your records to ensure consistency. If points were omitted, the lender should issue a corrected form. Promptly addressing any issues is critical, as precise reporting is required by the IRS.

Documentation Essentials

Proper documentation is crucial when claiming points as a tax deduction. Form 1098 is the primary reference, but additional records, such as the closing disclosure or settlement statement, are important. These documents provide a breakdown of closing costs, including points, and serve as evidence if the IRS requests further verification. Retain proof of payment, such as canceled checks, wire transfer confirmations, or bank statements. The IRS requires points to be paid directly by the borrower or the seller on the borrower’s behalf to qualify for deduction. If the seller paid points as part of a negotiated agreement, this must be documented in the closing paperwork. Without this evidence, taxpayers risk losing the deduction during an audit.

Points paid on refinancing are typically amortized over the loan’s term unless used for home improvements. Documentation should clearly specify the purpose of the refinance. Keeping organized records ensures compliance with IRS rules and simplifies tax preparation. Proper preparation can reduce stress and save time, especially if discrepancies arise or additional information is needed.