In an effort to help make filing taxes easier this year, we are breaking down the various IRS tax forms to help you know if you need them, and how to use them.
There’s nothing like a love letter from your mortgage lender with an IRS tax form to make you swoon with joy.
As tax forms go, the 1098 ranks among the simplest as you prepare your tax return. But there are some things you need to know about Form 1098 and how to use it in your tax return.
What Is IRS Tax Form 1098, Mortgage Interest Statement?
The IRS Form 1098 informs you how much interest you paid on your mortgage loan for the last tax year.
Mortgage lenders send you this document in case you want to itemize your deductions on your tax return. They also send a copy to the Internal Revenue Service for their records, so don’t get any ideas about taking liberties with your interest deduction.
Far fewer taxpayers itemize their deductions since the standard deduction jumped in the Tax Cuts and Jobs Act of 2017. That makes Form 1098 less relevant to the average American than it once was, though it does contain information you may need.
However, the form remains relevant to real estate investors, who deduct mortgage interest on Schedule E of their tax return. Mortgage interest is an expense for investment properties and comes off their taxable profit. Deducting it from your investment property profit doesn’t require you to itemize your deductions.
Who Should File Form 1098?
Property owners don’t file Form 1098 as part of their federal tax return. They simply list the amount of mortgage interest in the appropriate place on their return: Schedule A for homeowners, Schedule E for investment property owners.
Mortgage lenders need to file Form 1098 with the IRS if the borrower paid more than $600 in a given year and send you a copy — which you can frame if you so choose. They typically send the form in February with the total mortgage interest paid in the previous year.
How to File IRS Form 1098
While you don’t need to file Form 1098 as a borrower, it helps to be able to read it.
The most important information lies in Box 1: the amount of mortgage interest paid in the previous year. However, the form contains other useful information, including:
- Box 2: Outstanding mortgage principal (your remaining loan balance)
- Box 3: Mortgage origination date (your loan start date)
- Box 4: Refund of overpaid interest (if applicable)
- Box 5: Mortgage insurance premiums (if you paid private mortgage insurance for a conforming loan or mortgage insurance premium for a Federal Housing Administration loan, it appears here)
- Box 6: Points paid on the purchase of the principal residence (you may be able to deduct these as well)
- Boxes 7-11: Identifying information about your loan, such as the property address
You’ll also find identifying information about yourself, such as your name and Social Security number.
Other 1098 Forms
While the mortgage interest statement is the most common type of 1098 form, it’s not the only brat in the pack. You may also come across the following 1098 forms.
Form 1098-C, Contributions of Motor Vehicles, Boats
If you donated a vehicle — including boats or airplanes — to a charitable organization last year, you’ll receive a 1098-C from the charity.
Charities often give these vehicles to individuals in need or sell them at below-market rates and use the profit to fund programs. Alternatively, the charity might auction the car to raise money for their cause.
Form 1098-C confirms you weren’t part of that transaction. However, if you donated a beater worth less than $600, you may not receive one of these forms. Read the instructions for Form 1098-C for more information.
Form 1098-E, Student Loan Interest Statement
You may feel like you’ll be paying off your student loans for the rest of your life, but at least you get a tax break. Maybe.
Each year, you’ll receive a 1098-E detailing how much interest you paid to each loan servicer if it exceeded $600. You can deduct the interest from your taxable income on your 1040 without itemizing your deductions as long as you meet the income requirement.
You can deduct up to $2,500 in student loan interest for loans used to pay for qualified expenses while you were in school. However, the deduction does phase out if your modified adjusted gross income (MAGI) falls between $70,000 and $85,000 (between $140,000 and $170,000 if married filing a joint return). You cannot take a student loan interest deduction if your MAGI exceeds $85,000 or more ($170,000 or more if you file a joint return).
If you paid less than $600 in student loan interest last year, the servicer may not send you a 1098-E, but you can still deduct this interest as long as you have a record of how much you paid. If you don’t know, ask your servicer and record it in your tax file.
As a bonus, if your parents or someone else pays student loans in your name for you, the IRS considers the money a gift, and you can still deduct the interest on your own taxes. However, if the loan is in someone else’s name, that person is entitled to take the interest deduction as long as he or she is the one paying on it.
Form 1098-T, Tuition Statement
If you or one of your dependents is currently in school, the school will send an IRS Form 1098-T at the end of the year detailing all fees you paid for qualified tuition and other related expenses. Calculate all education-related tax deductions and credits, such as the tuition and fees deduction, the lifetime learning credit, or the American opportunity tax credit.
The amounts on the form encompass all money you paid to the school, even if you paid in advance — the payment appears on the tax form for the year in which you actually paid it.
For example, if you pay your spring semester tuition in December of the previous year, it will show up on the prior year’s 1098-T. These amounts include any money used from loans to pay for tuition and education expenses and list financial aid like college scholarships and grants separately.
Some expenses, such as college textbooks and school supplies, are not generally reported on the 1098-T, but you can still claim them for higher education tax credits or deductions so long as they’re classified as qualified expenses by the IRS.
Form 1098 FAQs
If you still have burning questions about 1098 tax forms, these answers to frequently asked questions can help clear them up.
How Do I Get a 1098 Form?
Your mortgage lender sends you a Form 1098, Mortgage Interest Statement. If you haven’t received it by late February, blow off some steam by yelling at your lender. (Just kidding. Be nice. They literally still own part of your house. But thinking about yelling at them should make you feel better.)
Form 1098-C comes from the charity you donated a vehicle to, while Form 1098-E comes from your student loan servicer. Form 1098-T comes from your college or university.
Do I Need to File Form 1098 With My Tax Return?
No, you don’t. You need only include the information in the appropriate field on your tax return.
When in doubt, ask your accountant or tax advisor. Alternatively, you can use an online tax preparation service, which will ask you for the amount you paid and fill it into the right field for you.
What Happens if I Don’t File a 1098 Form?
The IRS doesn’t require borrowers to file a 1098 form at all. But if you ignore them, you might miss out on valuable income tax deductions and make an involuntary donation to Uncle Sam.
If you are a lender, charity, student loan servicer, or university, you are required by law to both send a 1098 form to the payer and file it with the IRS. Failure to do so will result in your immediate execution — no, not really, but the IRS may penalize you, audit you, or otherwise make your life unpleasant.
Final Word
With a higher standard deduction these days, most Americans don’t have to stress over documenting and itemizing every single deduction anymore. It makes filing your tax return that much simpler.
However, homeowners who itemize their personal deductions do still want to include their mortgage interest among them. And the mortgage interest deduction offers another way for real estate investors to lower their taxes while leveraging other people’s money to build their portfolio of properties. Get tax advice from a qualified tax professional if you have any questions about these tax benefits.
Whether you deduct mortgage interest on your tax return or not, keep your 1098 forms in your tax records for at least three years after filing. You never know when Uncle Sam will pay you a nasty visit with an audit, and every deduction could help if he does.