What is a 1098 Form? How to Report Mortgage Interest

 

If you already have your Form 1098, you probably have everything you need to deduct your mortgage interest and points. Depending on if your deducting for your home or a rental, there might be a variety of different steps you have to take. Read on to see what schedules and steps you need to report mortgage interest for your specific situation.

How to Report Mortgage Interest on Form 1098

If you pay $600 or more in mortgage interest, your lender must send you and the IRS a Form 1098: Mortgage Interest Statement. If your mortgage interest is less than $600, your lender doesn’t have to send you this form. 

On your tax Form 1098 is:

  • Box 1 – Interest you paid, not including points
  • Box 2 – Outstanding mortgage principle
  • Box 3 – Mortgage origination date
  • Box 6 – Mortgage points you might be able to deduct. You usually see an amount in this box only if this is the mortgage you took out when you bought the home.

Put Box 1, deductible mortgage interest, and Box 6, points, into your Schedule A, Line 8a. You might be able to deduct the Form 1098 amounts if they meet the guidelines for that kind of amount. Enter these amounts on Schedule A:

  • Line 8b – Deductible mortgage interest you paid that wasn’t reported on the Form 1098
  • Line 8c – Points not reported to you on your Form 1098

The recipient of the interest might be an individual, not a business. If so, enter on the dotted lines next to Line 8b the recipient’s:

  • Name
  • Address
  • Identifying number — usually one of these:
    • Social Security number (SSN)
    • Employer Identification Number (EIN), if a business

Rental Property

You can deduct mortgage interest on rental property as an expense of renting the property. You report this mortgage interest from Form 1098 on Schedule E, not Schedule A. Also, you might have paid points when you took out the mortgage on your rental property. If so, you can’t deduct the mortgage points in the year you paid them. You must deduct the points over the life of the loan.

How to report mortgage interest from personal and rental use of same property

You must split property expenses if both of these apply:

  • You personally use part of your property.
  • You rent out another part of your property that you don’t personally use.

You should split expenses that apply to the entire property based on the percentage of space rented. These split expenses include mortgage interest and real-estate taxes.

You can only deduct the rental part of expenses from rental income. If you itemize, you can use Schedule A and IRS Form 1098 to deduct the personal part of:

  • Real estate taxes
  • Mortgage interest
  • Casualty losses

You can’t deduct the personal portion of other expenses, like utilities. 

Vacation homes

If you didn’t rent out your vacation home, you can fully deduct the mortgage interest on it from Tax Form 1098. Use Schedule A to deduct the home mortgage interest. If you personally used the vacation home and rented it out for fewer than 15 days:

  • You don’t need to report the rental income.
  • You can deduct the mortgage interest you paid from Form 1098.

If you rented out the home for 15 days or more:

  • You must report the rental income
  • You can deduct expenses related to renting the property. The expenses for personal use aren’t deductible as rental expenses.

Use these schedules to report your mortgage interest from IRS Form 1098:

  • Schedule E – Report the mortgage interest for the time you rented out the property.
  • Schedule A – Report the remainder of the mortgage interest you paid as a deduction.

The division of expenses is based on a ratio between the number of days rented and either of these:

  • Number of days you owned the home in the year
  • Number of days you used the home for personal purposes

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