Owning a home can yield some benefits at tax time if you’re able to deduct mortgage interest. If you paid interest on a mortgage loan, your lender should provide you with a Form 1098 Mortgage Interest Statement at the beginning of the year. There are several key pieces of information on this form that you’ll need to file your taxes and claim a deduction for mortgage interest payments. For more help with Form 1098 or any other financial considerations, consider working with a financial advisor.
What Is Form 1098 Mortgage Interest Statement?
Form 1098 is used to payments of mortgage interest, mortgage insurance premiums and points in excess of $600. Lenders and businesses that receive these payments are required to record them on Form 1098 and provide borrowers with a copy of this form.
You should receive a Form 1098 Mortgage Interest Statement for each mortgage you have outstanding. So if you have a primary mortgage and take out a second mortgage in the form of a home equity loan, you’d get two of these forms. The same would apply if you own a primary residence and a vacation home when both are mortgaged.
Lenders aren’t obligated to issue a Form 1098 if they receive less than $600 in interest, mortgage insurance premiums or points for the year. The IRS also allows an exclusion for interest received from corporations, partnerships, trusts and estates.
What’s Included in Form 1098 Mortgage Interest Statement?
There are different variations of Form 1098 and the type of form dictates what information is included on it. Form 1098-E, for instance, is used to report student loan interest paid by a borrower to a lender for the year.
When you’re talking about Form 1098 for homeowners, the information included is specific to a mortgage. Here’s what you’ll see listed on a typical Form 1098:
- Lender’s name, address, phone number and taxpayer identification number
- Borrower’s name, address and taxpayer ID
- Total mortgage interest received for the year
- Outstanding mortgage principal balance
- Mortgage origination date
- Refund of overpaid interest, if applicable
- Mortgage insurance premiums paid, if applicable
- Points paid on the purchase of the home, if applicable
- Address and description of the property
- Number of properties that secure the mortgage
- Date the mortgage was acquired by the lender
If you plan to deduct mortgage interest and other payments on your taxes, you’ll need all of this information to complete your return.
Using Form 1098 to Deduct Mortgage Interest
The IRS allows homeowners to deduct home mortgage interest on the first $750,000 of indebtedness. The limit drops to $375,000 if you’re married and file separate returns. If you’re deducting mortgage interest from a loan that originated before December 16, 2017, you can apply the previous limits of $1 million or $500,000 if married and filing separately.
There are a few rules to know about using Form 1098 to deduct mortgage interest:
- The mortgage must be secured debt
- The property must be a qualified home
Generally, if you’re taking out a mortgage for a home the home itself serves as collateral, meeting the secured debt requirement. Qualified homes are either the main home that you use as a primary residence or a second home that you don’t rent out at any time during the year.
There’s also a separate rule for mortgage interest paid on home equity loans and home equity lines of credit (HELOCs). In order for interest paid on those types of mortgages to be deductible, the proceeds must have been used to buy, build or substantially improve the home that secured the loan. So if you take out a home equity loan to consolidate credit card debt or pay medical bills, the interest payments wouldn’t be deductible.
Finally, you do have to itemize deductions to write off mortgage interest that’s reported on a Form 1098 Mortgage Interest Statement. Itemizing means you list out all of your deductions on Schedule A when filing your Form 1040. If you normally claim the Standard Deduction, then you’d have to decide whether itemizing instead would be worth it in order to deduct mortgage interest.
How to File Your Return With Form 1098 for Mortgage Interest
If you’re ready to file taxes with a Form 1098 Mortgage Interest Statement, the easiest way to do it is to use an online tax prep program. These programs can walk you through what you need to enter from Form 1098 to deduct mortgage interest.
First, you’ll want to review the form to make sure your name, address and taxpayer ID are accurate. Any errors could slow down the processing of your tax return. Once you’re sure the information is correct, you can move on to entering your mortgage interest information.
You’ll need to locate these boxes to fill out Schedule A:
- Box 1: Mortgage interest received from the borrower. This is the amount of interest you paid to your lender over the course of the year.
- Box 5: Mortgage insurance premiums. These are required when you purchased a home with less than 20% down.
- Box 6: Points paid on the purchase of the principal residence. If you paid points to buy your home, those will be listed here.
On Schedule A, you’ll also be able to list any deductible mortgage interest or points paid that weren’t included on a Form 1098 Mortgage Interest Statement. These amounts go on lines 8b and 8c, respectively.
You don’t actually need to file a copy of your Form 1098 when you file your taxes. Your mortgage lender will send the IRS a copy automatically when they mail yours out at the end of January each year. But it’s a good idea to keep a copy of your Form 1098 for your records in case the IRS questions the accuracy of your return later.
What If You Don’t Get a Form 1098 Mortgage Interest Statement?
If you don’t receive a Form 1098 from your lender, it’s possible that you didn’t pay enough in interest for the year to meet the reporting requirement. But if you’re certain that you should have received one, you’ll need to reach out to your lender.
They should be able to check their records to see if Form 1098 was issued or not. If it was and you still haven’t received it, it’s possible the form may have been sent to the wrong address or was simply lost in the mail. In either case, you could ask the lender to send another copy of the form so you can complete your taxes.
Keep in mind that if it’s close to the filing deadline and you still haven’t received your Form 1098, you may want to request a tax extension. This gives you more time to file while you’re waiting on the lender to provide you with the necessary paperwork so you can deduct mortgage interest.
The Bottom Line
Form 1098 is pretty straightforward as far as IRS forms go. If you own a home or multiple homes with mortgage debts, then odds are you’ll receive this form each year and you can then decide if you want to itemize to deduct mortgage interest. You may also want to talk to a tax pro before attempting to deduct mortgage interest for a home equity loan or HELOC, depending on how you used the money.
Tax Planning Tips
- Consider talking to a financial advisor about deducting mortgage interest and how to best minimize your tax liability each year. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Mortgage interest isn’t the only expense you can itemize on your taxes. You can also itemize to deduct state and local taxes, personal property taxes, disaster losses and charitable donations. Running the numbers through an online tax calculator can help you decide if itemizing or claiming the standard deduction is likely to yield a bigger tax break.
- Use SmartAsset’s mortgage comparison tool to compare mortgage rates from top lenders and find the one that best suits your needs.
- Our free mortgage calculator can let you estimate your monthly mortgage payment with taxes, fees and insurance.
Photo credit: ©iStock.com/xijian, ©iStock.com/Khanchit Khirisutchalual, ©iStock.com/AaronAmat