IRS Form 1098 Mortgage Interest Statement, is completed by mortgage providers for loans (for individuals or sole proprietorships) that they earn over $600 of interest on throughout the year. If you’re a mortgage holder as an individual or sole proprietorship, and have paid $600 or more in interest or points on your mortgage within the last year, you will likely receive a 1098 tax form from your lender. The interest you’ve paid on your mortgage can be claimed as a deduction on your federal income tax return to reduce how much you owe.
If you’ve received a 1098 form from your mortgage lender, this guide will help you understand what it is, what it means, and how to properly file your Mortgage Interest Statement. As the experts on all tax topics, the professionals at Community Tax can also assist you with Form 1098 and any other tax needs you may have.
What is a 1098 Form?
Form 1098 is a form that is used to report mortgage interest paid. Referred to as the Mortgage Interest Statement, the 1098 tax form allows business to notify the IRS of mortgage interest and points received in excess of $600 on a single mortgage. For individuals, the 1098 form allows them to provide documentation when claiming the mortgage interest deduction.
There are three key qualifying factors to determine if a mortgage is applicable:
- The total interest or points paid is $600 or greater for the tax year.
- The mortgage is held by an individual or a sole proprietorship.
- The mortgage is secured by real property (land and property or structures that are integrated or affixed to it).
How Does a 1098 Affect My Taxes?
If you want to claim a deduction for the amount of interest you’ve paid on your mortgage over the last year, you can file the 1098 form(s) you received. By claiming the deduction, you’ll be able to directly reduce your taxable income.
The three most important numbers to keep in mind when reviewing your 1098 form are:
- Box 1: This will show you how much mortgage interest you paid.
- Box 5: This will show how much you paid in mortgage insurance premiums.
- Box 6: Here you will find the value of the points you paid.
These amounts will allow you determine the total deduction you are able to take. If you’re having trouble interpreting IRS Form 1098, one of our tax professionals can help walk you through the process.
Who Can File Form 1098?
Form 1098 is filed by businesses who receive more than $600 in mortgage interest or points from an individual within a year.
Individual mortgage holders or sole proprietorships may also file Form 1098. If you paid over $600 in mortgage interest, you should receive a 1098 tax form from your mortgage provider so that you can file it with your taxes so that you claim the deduction. It is important to note that you do not have to file Form 1098 unless you wish to claim a deduction for the mortgage interest you’ve paid. This only applies if you’re itemizing your deductions.
Note for lenders: You do not need to file Form 1098 if you received mortgage interest payments of more than $600 from a:
- Company (other than a sole proprietorship)
Does Form 1098 Have to Be Filed?
Lenders must file Form 1098 for each qualifying mortgage. However, individuals do not have to file the 1098 form they receive, unless they want to claim a deduction for the interest payments.
Form 1098 Instructions: How to File Your 1098 Tax Form
To file your 1098 form(s), take the following steps:
- Collect all 1098 forms. These need to be included with your federal income tax return.
- Input the applicable values on Schedule A of Form 1040. Follow the instructions for totalling your mortgage interest and points as well as mortgage insurance premiums.
- Submit your federal tax return to the IRS along with the necessary documentation. Your individual federal tax return may be submitted online or by mail.
If you’re going to file one or more 1098 tax forms, here are some important points to take note of:
- You need to file a separate 1098 form for each mortgage
- If applicable, the payment of points and mortgage interest must both be included.
- If your itemized deductions, including your mortgage interest, are less than the standard deduction, you should use the standard deduction instead.
What Happens if Form 1098 Is Not Filed?
As a lender, if you fail to file Form 1098 on qualifying mortgages, you may face serious consequences from the IRS. As of 2020, penalties for late filing vary according to how late one files with the minimum fines ranging from $50 to $270 per return to $1,113,000 for small businesses. If your business intentionally disregards filing altogether, you face even larger penalties.
Other Types of 1098 Forms
There are four forms in total that include the 1098 number. In addition to the Mortgage Interest Statement, the other three 1098 forms are:
- Form 1098-C (Contribution for Motor Vehicles, Boats, and Airplanes): This form can be used for charitable donations of a vehicle worth more than $500 to a tax-exempt organization.
- Form 1098-T (Tuition Statement): This form can be used to claim tuition expenses for post-secondary education.
- Form 1098-E (Student Loan Interest Statement): This form can be used to report student loan interest you paid in excess of $600.
If you qualify for one of these forms, they should be sent to you by January 31st by the appropriate entity. You can also claim deductions for these expenses on your federal income tax return.
Get Help From a Tax Professional
Understanding the complexities of your individual or business taxes can be stressful. Fortunately, Community Tax provides comprehensive tax services to make tax season less intimidating. Whether you simply need assistance with one aspect of your taxes, like your 1098 form, or want us to handle everything on your behalf, our professionals have you covered.
Don’t wait until the last minute, contact us online or call us today at (844) 325-4360 for a free tax consultation.