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.
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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.
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:
If you plan to deduct mortgage interest and other payments on your taxes, you’ll need all of this information to complete your return.
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:
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.
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:
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.
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.
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.
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Rebecca Lake, CEPF®Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.
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