Tax Form 1098 Instructions
Tax Form 1098, the Mortgage Interest Statement, is used to report mortgage interest of $600 or more. Additionally, this tax form can be used to report premiums paid for mortgage insurance in excess of $600.
There are five boxes on Form 1098 that you need to become familiar with. They include the following:
Box 1: This shows the mortgage interest from the prior year. The amount includes interest secured by real property, which can include a credit card loan, home equity loan (HEL), or home equity line of credit (HELOC). It does not include government subsidy payments, mortgage points, or payments on a ‘buy-down mortgage.’
Box 2: Contrary to popular belief, not all mortgage points are tax-deductible. This box shows the points that you (or the seller) paid for the purchase of the home, points which are required to be reported. In most cases, these points are deductible in the year they were paid.
Box 3: Many people make the mistake of deducting the amount that appears in Box 3. But this box is for a tax credit or tax refund for overpayment of interest, and is not tax-deductible. If you itemized deductions in the year that you overpaid, you may have to include this income on the ‘other income’ section of your personal income tax return.
Box 4: If you pay mortgage insurance premiums for your mortgage loan, you can include that in this box. This amount may be tax-deductible as well.
Box 5: This box is often times used to provide additional information, including the address of the property.
IRS Tax Form 1098 (Mortgage Interest Statement)
If you have a mortgage loan, you do not have to do anything extra in order to receive a Tax Form 1098. Your mortgage lender is required by law to provide this tax form to their borrowers. You can expect to receive Tax Form 1098 in the mail sometime during the month of January. If you plan on deducting your interest and other mortgage-related expenses, you will need this form when filing your final tax return. Although the five boxes are pretty much self-explanatory, you should consider enlisting the help of a tax professional if you have any questions. Interest paid on a mortgage can be a very large tax deduction that you do not want to pass by.
As you begin to gather and organize your tax documents, make sure you keep an eye out for Tax Form 1098. This is something you will need when filing your income tax return.