If you have a mortgage, you’ll receive tax form 1098 before the end of January. Mortgage lenders are required by law to send you this form so that you can use it to file your taxes. This is one tax form that you may actually want to receive in the mail!
The 1098 Tax Form Defined
The 1098 tax form shows you and the IRS how much you paid in mortgage interest over the past year as well as any other mortgage-related costs.
The first number you’ll see and probably the largest number is the interest paid. It’s usually in Box 1. This is the number you’ll use if you itemize your deductions on your tax return. Mortgage interest is a deduction, not a credit, so don’t get the two confused. While you won’t get a dollar-for-dollar reimbursement on the interest you paid, you will get a percentage of the amount you paid deducted from your tax liability.
Other Information on the 1098 Tax Form
You may also see some of the following on your 1098 Tax Form:
- Origination/discount points paid – If you bought your home last year and paid origination points, you’ll see the amount in this box
- Refund of overpaid interest – If you paid more interest than was due and the lender reimbursed you for the interest, it will be noted on the 1098 and will reduce your deduction
- Real estate tax information – If your lender paid your real estate taxes for you, they may note the amount on Form 1098
Will You Receive a 1098?
If you own a home and have a mortgage, you’ll likely receive form 1098. But this is only the case if you pay more than $600 a year in interest. If you paid less than $600, you won’t receive one. Also, just because you receive a 1098 doesn’t mean that you can deduct the interest on your taxes.
Typically, you can only deduct the interest on your first mortgage on your primary residence. If you pay interest on investment homes or a second home, you can’t deduct the interest. You also may not be able to deduct the interest paid on a second mortgage. If you used the funds for the second mortgage to purchase or renovate your home you can deduct it, but if you used it to consolidate debt or any other use, you cannot deduct the interest.
Most importantly, you can only deduct the interest if you can itemize your deductions. If you don’t have enough deductions to total more than the standard deduction, you’re better off taking the standard deduction and leaving the interest alone.
The tax form 1098 is an important form if you are going to itemize your deductions on your tax returns. Since the tax laws are slightly different this year and the standard deduction is higher, fewer homeowners will utilize tax form 1098 this year, but it’s worth looking into to see if you can minimize your tax liability even further.