Form 1098

Form 1098, Mortgage Interest Statement, is the IRS information return on which a lender reports the interest it received on a mortgage during the calendar year. Section 6050H of the Internal Revenue Code requires it from anyone who is engaged in a trade or business and, in the course of that business, receives $600 or more of mortgage interest from an individual. The lender files the return with the IRS and furnishes a statement to the borrower, which is the copy most people know as their 1098.

For this purpose a mortgage is "any obligation secured by real property", so the form covers a home equity loan or line of credit secured by the house as well as the original purchase loan. It also reports the outstanding principal, the origination date, points paid on the purchase of a principal residence, refunds of interest overpaid in earlier years and qualified mortgage insurance premiums. It is a report of money received. It does not tell the borrower how much of that interest is deductible, which turns on how the debt was used and how large it is.

The $600 test is per mortgage. The instructions say so directly: the threshold "applies separately to each mortgage", so a lender holding two loans to the same person, each with less than $600 of interest, need not file for either. The figure comes from section 6050H itself, not from the general information-return rule in section 6041, which is why the change Congress made to the general threshold for payments after 2025 did not move it.

Who files, and who does not. Banks, credit unions, mortgage companies and servicers file, and so does any business that receives mortgage interest in the course of its trade even if lending is not its business; the instructions give a real estate developer financing a buyer as the example. A governmental unit files without regard to the trade-or-business test, and a cooperative housing corporation reports each tenant-stockholder's share of the building's mortgage interest. Where a servicer collects for the owner of the loan, the first person to receive the interest is generally the one that files. An individual who sells a former home and carries the financing is not receiving the interest in a trade or business and is not required to file at all.

The boxes. Box 1 is the interest received, including interest on a home equity loan or line of credit secured by real property and including prepayment penalties and late charges that are not for a specific service. It excludes points, government subsidy payments and a seller's payments on a buydown mortgage. Box 2 is the outstanding principal on January 1 (or at origination or acquisition, if later), box 3 the origination date, box 4 any refund of interest overpaid in a prior year, box 5 qualified mortgage insurance premiums of $600 or more, and box 6 points paid on the purchase of the payer's principal residence. Boxes 7 through 9 identify the property and the number of properties securing the loan, box 10 is free-form (real estate taxes paid from escrow often appear there), and box 11 shows when the lender acquired the loan if it bought it during the year.

Box 6 is narrower than the points a borrower paid. Points on a refinance, on a loan to improve a home, on a home equity loan or line of credit, and on a second home are not reported in box 6, even though some of them may still be deductible over the life of the loan. Box 5 is narrow in a different way: qualified mortgage insurance means coverage under a contract issued after 2006, from the Department of Veterans Affairs, the Federal Housing Administration or the Rural Housing Service, or private mortgage insurance as the Homeowners Protection Act defines it, and the lender reports it only when the mortgage insurance rule in section 163(h)(3)(E) applies for the year.

The form has relatives that share only the number. Form 1098-E (Student Loan Interest Statement), 1098-T (Tuition Statement), 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes), 1098-Q (Qualifying Longevity Annuity Contract Information), 1098-F (fines and penalties), 1098-MA (Mortgage Assistance Payments) and 1098-VLI (vehicle loan interest) each have their own instructions, thresholds and uses. A question about a 1098-T is a question about education credits, not about mortgages.

1. The lender tracks interest by mortgage and by payer of record. The payer of record is the borrower carried on the lender's books as the principal borrower. If a buyer later assumes the loan without releasing the original borrower, the new buyer becomes the payer of record.
2. By January 31, the lender furnishes the statement to the payer of record, as section 6050H(d) requires, and files its copy with the IRS separately.
3. The borrower checks it against their own records. A loan that was sold or transferred during the year normally produces two forms, one from each holder for the interest that holder received, with box 11 showing the date the new holder acquired it.
4. The deduction is figured separately. Deductible interest and points reported on the form go on Schedule A line 8a, interest not reported to the borrower on a Form 1098 goes on line 8b, and points not reported go on line 8c. The mortgage interest deduction rules decide how much of the total is deductible.

Take an example of two unmarried co-owners. Ingrid and Tomas bought a house together with one mortgage, and the lender lists Ingrid as the payer of record. The year's Form 1098 shows $14,400 in box 1 and goes to Ingrid alone. Ingrid paid 60 percent of each payment and Tomas 40 percent. The form's own instructions say each borrower may deduct only what that borrower paid, and tell the payer of record to give the other borrowers the information on how the amounts divide. So Ingrid's share is 0.60 × $14,400 = $8,640 and Tomas's share is 0.40 × $14,400 = $5,760, each claimed on their own return if they itemize. Tomas received no form, so the Schedule A instructions have him report his share on line 8b and identify Ingrid as the person who received the Form 1098 for the interest he paid.

Pros

• Puts the year's mortgage interest, points on a purchase, refunds and qualified mortgage insurance premiums in one document, which makes itemizing easier to check.
• Box 2's opening principal and box 3's origination date are the starting points for testing a loan against the acquisition-debt limit and the December 15, 2017 grandfathering date.
• The IRS gets the same figures, so a return that matches the form needs no explanation; the Schedule A instructions ask for one when a return claims more than the form shows.

Cons

• Box 1 is not the deductible amount. Interest on debt that exceeds the limit, or on cash-out money spent on something other than the home, still appears in full.
• It goes only to the payer of record, so co-borrowers who do not file a joint return together have to divide the figure themselves.
• Box 6 leaves out refinance points and points on a second home, so a borrower relying on the form alone can miss a deduction spread over the loan's life.
• Seller-financed and family loans from an individual usually produce no form at all, and the borrower has to document the interest independently.