Hey everyone! I’m Bette Hochberger, CPA, CGMA. Navigating the world of taxes can be overwhelming, but understanding key forms and how to utilize them can significantly benefit your financial health! One such form is IRS Form 1098, which is essential for homeowners who want to deduct mortgage interest from their taxable income. 

In today’s quickie, I will walk you through what Form 1098 is, how to use it, and the steps for filing it correctly. Let’s go ahead and jump in!

What is IRS Form 1098?

IRS Form 1098, Mortgage Interest Statement, is a document that lenders provide to borrowers at the beginning of each year. This form reports the amount of mortgage interest and related expenses paid during the previous tax year. If you paid at least $600 in mortgage interest during the year, your lender is required to send you this form.

Key Information

Form 1098 includes several critical pieces of information:

– Borrower’s and Lender’s Information: The form lists the names, addresses, and taxpayer identification numbers of both the borrower and the lender.

– Mortgage Interest Received: The total amount of interest paid on the mortgage over the year.

– Outstanding Mortgage Principal: The principal balance of the mortgage at the beginning of the calendar year.

– Mortgage Origination Date: The date when the mortgage originated.

– Refunds of Overpaid Interest: Any refunds you received for overpaid interest.

How to Use Form 1098 to Deduct Mortgage Interest

Step 1: Gather Your Documents

Ensure you have all relevant documents, including Form 1098, your mortgage statements, and any other paperwork related to your mortgage payments.

Step 2: Itemize Your Deductions

To deduct mortgage interest, you must itemize your deductions on Schedule A of Form 1040. Itemizing allows you to list all your deductible expenses, which can include mortgage interest, property taxes, and other eligible expenses.

Step 3: Enter Mortgage Interest on Schedule A

On Schedule A, enter the mortgage interest amount reported in Box 1 of your Form 1098. This amount is then added to your other itemized deductions to reduce your taxable income.

Step 4: Complete Your Tax Return

Finish filling out your tax return, ensuring that all forms and schedules are attached and correctly filled out. If you’re using tax preparation software, it will guide you through entering this information and calculating your deductions.

Common Questions about Form 1098

Do I Need to Attach Form 1098 to My Tax Return?

No, you don’t need to attach Form 1098 to your tax return. However, keep it for your records in case the IRS needs to verify the information.

What if I Didn’t Receive Form 1098?

If you paid at least $600 in mortgage interest but did not receive Form 1098, contact your lender. They are required to provide this form. You can still deduct the interest without the form as long as you have accurate records.

Can I Deduct Mortgage Insurance Premiums?

Yes, mortgage insurance premiums may also be deductible! These are usually reported in Box 5 of Form 1098.

What if There Are Errors on My Form 1098?

If you notice any errors on your Form 1098, contact your lender immediately to correct the information. Accurate reporting is crucial to ensure you receive the correct deduction!

Tips for Maximizing Your Mortgage Interest Deduction

  1. Refinance with Caution: If you refinance your mortgage, keep track of any points paid, as these can also be deductible.
  2. Home Equity Loan Interest: Interest on home equity loans or lines of credit may be deductible if the funds were used to buy, build, or substantially improve your home.
  3. Stay Organized: Keep thorough records of all mortgage payments, interest statements, and related financial documents.

IRS Form 1098 is a valuable tool for homeowners seeking to maximize their tax deductions through mortgage interest. Feel free to schedule a meeting with us if you have any specific questions or unique situations related to your mortgage interest deduction.

As always, stay safe, and I will see you next time.