IRS Form 1098, also known as the Mortgage Interest Statement, is a tax document provided by mortgage lenders to report the amount of mortgage interest a homeowner has paid over the tax year. This form is essential for homeowners because it helps them take advantage of the mortgage interest deduction, which can reduce their taxable income, especially if they itemize deductions on their tax return.
Key Components of Form 1098
The form contains important details that homeowners use to claim deductions, including:
- Mortgage Interest Paid: The total amount of interest paid on a mortgage loan over the year. This figure, reported in Box 1, is the primary number used for the mortgage interest deduction on Schedule A of Form 1040.
- Mortgage Points: Points (or fees) paid to reduce the mortgage interest rate may be reported on Form 1098 and can also be deductible in certain cases, which are typically listed in Box 6.
- Property Tax Payments: Some lenders report property tax payments made through escrow on Form 1098. Although property taxes aren’t part of the mortgage interest deduction, they’re also deductible as an itemized expense.
- Mortgage Insurance Premiums: If premiums were paid for mortgage insurance, they might appear in Box 5. In some cases, these premiums are deductible.
Why Form 1098 Matters for Homeowners
- Maximizing Deductions: Mortgage interest, points, and mortgage insurance premiums (when deductible) can significantly reduce a homeowner’s taxable income, making it worthwhile to itemize deductions instead of claiming the standard deduction, particularly for new homeowners or those with high loan amounts.
- Tax Compliance: By reporting Form 1098 to the IRS, lenders help ensure that deductions claimed by homeowners match official records, reducing the risk of audits or disputes over interest deductions.
- Planning for Future Deductions: Reviewing Form 1098 helps homeowners understand how much they’re paying in interest versus principal, which can influence decisions on making extra payments to pay down their mortgage faster.
Timing and Filing Requirements
Homeowners should expect to receive Form 1098 from their lender by January 31, the deadline for lenders to send out tax documents. The information on Form 1098 is also reported directly to the IRS, which cross-references it with the homeowner’s tax return to verify deductions.
