Mortgage Interest Statements: Understanding 1098 Forms

What exactly is a 1098 mortgage interest statement and why should you know about it?

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By

Bridget Houlihan

on

Jan 21, 2021

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Main image courtesy of Northwestern Mutual.

When it comes time to purchase a house, most people do their research and find a lender to help them with a home loan. After they get approved and close on their dream home, homeowners are responsible for paying back their debt in the form of a mortgage payment. Your monthly payment will go towards the principal, interest, insurance, and taxes, and successful payment each month will allow you to build up your equity.

Depending on how you choose to do your deductions, when the time comes to do your taxes, you may come across form 1098. But what is this form for and do you have to fill it out as a homeowner with a mortgage payment?

In this article we’re going to cover the following topics:

  • What is the 1098 form?
  • When do you file a 1098 form?
  • Is the 1098 form the only interest form you should file?

What is the 1098 form?

Let’s become a little more familiar with the IRS 1098 form

homeowner reviewing mortgage documents
Form 1098 lets homeowners know just how much they paid in interest in the last year.  Image courtesy of IPAG Business School.

The form 1098 is used when you’re filing your taxes to report the amount of mortgage interest you paid in the last tax year. Homeowners want to know their interest so they can deduct it off of their Schedule A. It is a requirement for lenders to issue a 1098 form to homeowners who paid over $600 in interest, but that doesn’t mean they have to file it with their taxes. In addition to interest, if you’ve paid mortgage insurance premiums or points (prepaid interest made on your home loan), those should be included as well. But why does the IRS require lenders to do this? They use it to ensure that lenders are properly reporting the amount of interest they’re receiving on loans to homeowners. 

The 1098 is also helpful to homeowners because it shows them the exact amount in interest that they’ve paid over the last tax year. They’ll need this information if they plan on itemizing their deductions in order to qualify for the mortgage interest deduction. 

Your lender will issue you a 1098 form for any real property you own, which means if you have more than one home, you may find that you receive two 1098 forms. However, if you’ve paid less than the $600 threshold, you may not receive a 1098 form since your lender is not obligated to send you one. 

When would you file a 1098 form?

Are you required to file 1098 just because you’re a homeowner?

person working at their computer on their desk
Just because you’re a homeowner with a mortgage doesn’t mean you’re required to file a 1098 form. Image courtesy of the CEO Magazine.

If you’re planning to itemize your deductions, then you’ll want to file a 1098 form. Homeowners may choose to itemize to get the mortgage interest deduction, and it could even reduce their total taxable income. If you’re claiming the standard deduction instead of itemizing, you don’t need to file the 1098 since you are not going to claim the mortgage interest deduction. But if you’re filling out Schedule A, first you’ll need to make sure you’re the primary borrower and are still currently making loan payments. You also need to make sure that you’re claiming interest on a loan of $750,000 or less for mortgages originating after December 16, 2017. If you have debt that is older, the limit is $1 million.

Understanding the 1098 form

The form itself is very straightforward and basically offers the following information:

  • Name, address, etc. of Lender
  • Name, address, etc. of Taxpayer
  • The amount of the mortgage interest for the previous year
  • The principal remaining
  • The origination date of the mortgage
  • Any interest refund
  • Any points or mortgage insurance premiums
  • Address of the property

Remember, the only time you’ll need to file the 1098 form is if you’re planning to itemize your deductions. You do not need to fill it out and include it with your tax return if you’re doing the standardized deduction, as the IRS has already received a copy with the interest amount from your mortgage lender. 

Are there other 1098 forms you should be aware of?

In addition to the 1098 mortgage interest deduction form, there are other forms that are related to deductions. These are for specific circumstances and do not apply to all taxpayers. 

  • 1098-C. If you’ve ever considered donating a car, boat, or airplane to a charitable cause, then a 1098-C form is in order. If you choose to make this type of generous donation, you’ll receive a 1098-C form from the charity that you donated the vehicle to. This is another deduction that you may want to claim if you’re filling out Schedule A when you do your taxes. This form is necessary if you want to claim more than $500 for the donation. Similar to the regular 1098 form, you’ll need to include the donee and donor’s name, vehicle information, and a description of goods/services exchanged for the vehicle.
  • 1098-E. This is the student loan interest statement. If you paid more than $600 in student loan interest, the owner/lender of your loans will send this form. You may be able to claim this amount as an adjustment when you are figuring out your Adjusted Gross Income for the year. 
  • 1098-T. The 1098-T is a tuition statement that can be used to claim education deductions and credits. It’s a report of the amount paid in tuition and related fees throughout the year. Qualifying expenses include fees and materials that are necessary to attend an eligible school. 

If any of these circumstances apply to your situation in addition to the regular 1098 form, make sure you include them when you’re filling out your Schedule A.

The 1098 form lets homeowners know exactly how much they’ve paid in interest over the past year. If they want to do an itemized deduction, they can use the mortgage interest statement to potentially reduce their total taxable income.

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