Highlights:
- If you're the payee or borrower, you must only file Form 1098 if you're paying $600 or more in mortgage interest annually and intend to claim that interest as a deduction.
- Filing Form 1098 is mandatory if your business received at least $600 in mortgage interest payments.
- Lenders must send you this form by January 31st, so you have plenty of time to gather your documentation and submit your taxes by tax filing day, usually April 15th.
- Keeping this form for at least three years and maintaining accurate tax records for tax compliance purposes is recommended.
What Is the IRS Form 1098?
The IRS Form 1098 is used to report payments on mortgage interest and mortgage insurance premiums (MIP) of $600 or more. Form 1098 reports this information to the IRS for two reasons. The first is to help taxpayers claim tax credits for interest paid on their mortgage.
Second, the corporations and institutions receiving interest payments and mortgage insurance premiums (MIP) report them as income when filing taxes.
As a result, borrowers and real estate companies are required to file Form 1098, which is relevant for borrowers who want an end-of-year mortgage statement.
Do I have to file Form 1098?
If you want to claim your mortgage interest as a deduction, you must use Form 1098 to file your taxes. Otherwise, the IRS doesn’t require it from taxpayers.
Conversely, businesses must file Form 1098 for each mortgage held by an individual or sole proprietorship, resulting in at least $600 of interest payments or MIP—even if you’re not in the lending business.
Filing requirements
Although borrowers aren't required to file Form 1098, various businesses and individuals are required by to file if they receive at least $600 of interest payments, mortgage points, or MIP during the year unless such payments aren't business-related.
In other words, you don’t need Form 1098 to file taxes if you’re an individual taxpayer, but businesses handling mortgage transactions must file this form.
Required filing applies to non-lenders, governmental entities, cooperative housing corporations, collection agents, foreign parties who receive interest within the United States, and qualified third parties who handle interest payments and tax forms on a business's behalf.
The IRS grants exceptions for filing Form 1098 if the business receives interest from a corporation, company, partnership (but not a sole proprietorship), trust, association, or estate.
Filing deadline for Form 1098
The IRS deadline for lenders and corporations to send Form 1098 to taxpayers/borrowers is January 31 each year. This date gives taxpayers a fair amount of time to compile their documents and file their taxes by April 15. The purpose of the deadline is for businesses to make critical tax information available to individual filers.
How to fill out Form 1098, step-by-step
Form 1098 is composed of eleven sections containing different pieces of information. Here’s a breakdown of each section:
Box 1
This box is for the interest the lender or business received for a mortgage, home equity loan, or home equity line of credit. Remember, prepaid interest for payments until January 15 of the following year counts toward this amount. Points, government subsidies, or seller payments for "buydown" mortgages aren't included because they'll appear in a later box.
Box 2
The next box contains the outstanding mortgage principal (i.e., the amount the mortgage holder still owes) as of January 1 of the calendar year. Write the original amount if the payer got the mortgage in the filing year. Likewise, if you obtained the mortgage during the filing year, write the principal amount on the day you obtained it.
Box 3
This box is for the origination date of the mortgage.
Box 4
This box is for overpayments on interest that the payer/borrower made during the year and received a refund for from the lender. This amount can affect the mortgage interest deduction on the payer’s federal tax return.
Box 5
Mortgage interest premiums (MIP) go in this box. Payers/borrowers can deduct these payments from federal income taxes like mortgage interest.
Box 6
Mortgage points purchased during the filing year go in this box. Any points the homeowner purchased are tax-deductible. Any points the seller paid for aren’t deductible.
Box 7
Check this box if the property’s address is the payer’s home address or if you’ve filled out box 8.
Box 8
Write the address or a description of the property to distinguish it from other properties.
Box 9
Leave blank if the property described in box 8 is the only real estate securing the mortgage. Otherwise, write the number of properties securing the mortgage.
Box 10
This box is for other relevant information, including real estate taxes and insurance payments made from the borrower’s escrow account.
Box 11
If the lender/recipient acquired the mortgage during the filing year, the acquisition date goes in the final box.
How to file Form 1098
The steps for filing Form 1098 depend on if you’re the recipient or payer. If you’re the recipient, you’re the party collecting mortgage payments and managing properties. In this case, you’ll follow the steps outlined in the previous section to fill out the form and send it to the payer by January 31, as required by the IRS.
If you’re the payer, the first step is to have Form 1098 sent from the company or entity managing your mortgage. If you have multiple mortgages, you’ll need a Form 1098 for each. Then, you’ll input the relevant information – mortgage interest, MIP, and mortgage points – to line 12 of Form 1040.
You’ll only input this information if you’re itemizing your deductions. If your total itemized deductions are less than the standard deduction, take the standard deduction for the highest possible tax benefit.
After filling in the mortgage information, you’ll submit Form 1040 to file your federal tax return. You can send the form to the IRS online or through the mail.
Other types of 1098 Forms
There are several other types of Form 1098 worth mentioning. They are very similar to each other because they require a lot of the same information like taxpayer identification information and financial details for filing. The forms aid in tax filing by reporting different types of expenses, which enable you, the taxpayer, to claim corresponding deductions.
The other types are:
- Form 1098-C: For taxpayers who charitably donate a motor vehicle, boat, or airplane worth more than $500.
- Form 1098-T: For recording tuition paid and scholarships/grants received for higher education.
- Form 1098-E: For taxpayers who paid over $600 in student loan interest during the year.
Form 1098 & recordkeeping
Maintaining accurate tax records is crucial for understanding your business's profitability and providing necessary documentation in case of an audit. Even if your small business isn't required to file Form 1098, keeping detailed records of income and expenses is standard practice.
Effective bookkeeping facilitates quick loan applications, ensures you claim eligible deductions and helps catch financial errors.
The U.S. Chamber of Commerce recommends businesses retain tax records indefinitely. Similarly, payers should keep records of Form 1098 documents received as they report mortgage payment-related expenses. Form 1098 becomes essential when aiming for the highest possible tax return through itemized deductions and audit compliance.
The IRS suggests that individual taxpayers retain their tax records for at least three years before disposal.
If the other demands of your business mean recordkeeping stays on the back burner, a professional can assist in maintaining your records and ensuring your finances are in order. Bench’s professional bookkeepers and tax advisory team utilize streamlined software to generate financial statements, track your daily expenses, and alleviate the stress of tax time.
