Form 1098

Why do you need to file a 1098?

Form 1098, “Mortgage Interest Statement,” is filed by entities (such as banks or other lenders) that receive mortgage interest payments from individual borrowers during a tax year. The form is provided by the entity that paid the income to the borrower and a copy is also sent to the Internal Revenue Service (IRS). Filing a 1098 is essential for several reasons:

Tax Deduction for the Borrower

• The main purpose of Form 1098 is to provide the borrower with the official amount of mortgage interest they’ve paid during the year. This allows borrowers to potentially claim a tax deduction for the mortgage interest on their personal tax return, provided they itemize their deductions on Schedule A of Form 1040. The form essentially serves as proof of the interest paid.

IRS Requirement for Lenders

• Lenders or mortgage servicers are required by the IRS to report certain transactions. If a lender receives $600 or more in mortgage interest from a borrower during the tax year, they are generally obligated to provide a Form 1098 to both the borrower and the IRS.

Verification

• Reporting mortgage interest via Form 1098 allows the IRS to verify the amounts individuals claim as deductions on their tax returns. The IRS can cross-check the amounts borrowers report with the amounts that lenders file, ensuring the accuracy and legitimacy of deductions.

Additional Information

• Form 1098 isn’t just for reporting interest. It can also provide information about other payments and transactions related to the mortgage, such as:
  • Mortgage insurance premiums that might be deductible for the borrower.
  • Points paid on a mortgage purchase.
  • Refunds of overpaid interest.

Accountability

• The form ensures that financial institutions are consistent and transparent about the mortgage interest amounts they receive, fostering trust and accountability in financial reporting.

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Who needs to file a 1098?

Form 1098, “Mortgage Interest Statement,” is filed by entities that receive mortgage interest payments from individual borrowers during a tax year. Here’s a breakdown of who typically needs to file this form:

Lenders and Financial Institutions

• Banks, credit unions, mortgage companies, and other financial institutions that extend loans secured by real property are typically responsible for filing Form 1098 if they receive mortgage interest from borrowers.

Private Mortgage Holders

• If an individual extends a private loan to another person that’s secured by a home, and they receive $600 or more in interest on that loan during the tax year, they typically need to file Form 1098. This scenario might arise in cases such as seller-financed transactions.

Entities in Cooperative Housing Corporations

• If an individual pays interest to a cooperative housing corporation, the corporation may need to issue a Form 1098 to the payer if certain conditions are met.
  • Threshold for Filing
    • Generally, if an entity (be it a financial institution or a private lender) receives $600 or more in mortgage interest from a borrower in a year, they are required to file Form 1098. They must provide a copy of the form to both the borrower and the IRS.

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Are there any exemptions to filing a 1098?

Yes, there are specific exemptions and situations where an entity might not be required to file Form 1098, “Mortgage Interest Statement.” Here are some notable exemptions and special situations:

Interest on Business Property

• If the mortgage interest is received on business property, there’s no requirement to file Form 1098.

Foreign Interest Recipients

• Generally, interest recipients who reside in a foreign country and receive the payments outside the U.S. might be exempt from filing Form 1098.

Multiple Lenders

• If a mortgage is held jointly by multiple individuals who are not in the business of lending, they might not need to file a 1098 for the interest received under certain conditions. For instance, if three private individuals (not in the lending business) hold a mortgage, they can appoint one among them to issue the 1098. If they do not appoint anyone, and the one receiving the statements from the payer is not in the business of lending money, then they are not required to report the interest.

Below Threshold

• The general rule is that if an entity receives less than $600 in mortgage interest from a borrower in a year, they are not required to file Form 1098.

Governmental Units

• Generally, governmental units (or any subsidiary agency) are not required to issue Form 1098.

Cooperative Housing Corporations

• Such entities are exempt unless specific conditions are met. If a member of a cooperative housing corporation pays interest to the corporation, the corporation may need to issue a Form 1098 to the payer under certain circumstances.

Interest Paid by a Trust or Estate

• If the interest is paid by a trust or estate, there’s typically no requirement for filing Form 1098.

It’s worth noting that just because a lender or interest recipient doesn’t need to provide a Form 1098, the borrower is still generally eligible to deduct the mortgage interest paid, provided they have the necessary documentation and meet the requirements for the deduction.

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What is the deadline for filing a 1098?

The deadline for filing a 1098 can vary based on the several factors:

Sending to Recipients

• The 1098 form should be furnished to the recipient by January 31 of the year following the payment year.

Filing with the IRS

• If you are filing on paper, the 1098 forms should be submitted to the IRS by February 28 (or the last day of February) of the year following the payment year.
• If you are filing electronically, the deadline extends to March 31 of the year following the payment year.

However, if any of these dates fall on a weekend or a holiday, the deadline may be extended to the next business day. Additionally, if you discover an error after the initial filing, there are separate deadlines for corrected 1098 forms.

Remember, missing these deadlines can result in penalties, so it’s crucial to stay informed and act timely.

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What is required to file a 1098?

To file a Form 1098, you will need certain information about both the payer (the person or business making the payment) and the recipient (the person or business receiving the payment). Here’s what is required to file a 1098:

Information about the Payer (Lender)

• Payer’s Name and Address
  • Provide your legal business name and mailing address.
• Payer’s Taxpayer Identification Number (TIN)
  • This could be your Employer Identification Number (EIN) or your Social Security Number (SSN), depending on your business structure. If you’re a sole proprietor, you might use your SSN; if you’re a business entity, you’d use your EIN.
• Payer’s Phone Number
  • Include a phone number where the payer can be reached.

Information about the Recipient (Borrower)

• Recipient’s Name and Address
  • Provide the legal name and mailing address of the individual or business receiving the payment.
• Recipient’s Taxpayer Identification Number (TIN)
  • This could be the recipient’s Social Security Number (SSN) if an individual or their Employer Identification Number (EIN) if a business entity.

Form specific information

Box 1 – Mortgage interest received from payer(s)/borrower(s)

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What are the penalties for 1098?

Please see the penalties section for details.

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Do you need to e-file a 1098?

Please see the e-file section for details.

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Is state filing required for the 1098?

Currently, the 1098 form does not have a place to enter state information.

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What elements make up a 1098 form?

The 1098 contains several boxes, each designed to report specific types of income or information. Here is a breakdown of the boxes on the 1098:

Box 1 – Mortgage interest received from payer(s)/borrower(s)

Enter the interest (not including points) received on the mortgage from borrowers during the calendar year. Include interest on a mortgage, a home equity loan, or a line of credit or credit card loan secured by real property. Do not include government subsidy payments, seller payments, or prepaid interest that does not meet the exception. Interest includes prepayment penalties and late charges unless the late charges are for a specific mortgage service.

Box 2 – Outstanding mortgage principal

Enter the amount of outstanding principal on the mortgage as of January 1, of the current year. If you originated the mortgage in the current year, enter the mortgage principal as of the date of origination. If you acquired the mortgage in the current year, enter the outstanding mortgage principal as of the date of acquisition.

Box 3 – Mortgage origination date

Enter the date of the origination of the mortgage. If you acquired this mortgage, do not enter the date of acquisition (Box 11). Enter the date the mortgage originated with the original lender.

Box 4 – Refund of overpaid interest

Enter the total refund or credit of a prior year(s) overpayment of interest.

Box 5 – Mortgage insurance premiums

If section 163(h)(3)(E) applies for the tax year being reported, enter the total premiums of $600 or more paid (received) for the tax year being reported, including prepaid premiums, for qualified mortgage insurance. Qualified mortgage insurance is mortgage insurance under a contract issued after December 31, 2006, and provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service (or their successor organizations), and private mortgage insurance.

Box 6 – Points paid on purchase of principal residence

Enter points paid on the purchase of the payer of record’s principal residence.

Box 7 – The address of property securing mortgage is the same as payer’s/borrower’s address

If the address of the property securing the mortgage is the same as the payer’s/borrower’s mailing address, either check the box or leave the box blank and complete box 8. If the address or description of the property securing the mortgage is not the same as the payer’s/borrower’s mailing address, complete box 8.

Box 8 – Address or description of property securing mortgage

If the address of the property securing the mortgage is not the same as the payer’s/borrower’s mailing address, or you did not complete box 7, enter the street address (including the apartment number) of the property securing the mortgage. Immediately below the street address, enter the city or town; state or province; country; and ZIP or foreign postal code of the property securing the mortgage.

If the property securing the mortgage has no address, enter the property’s jurisdiction and the property’s Assessor Parcel Number.

Box 9 – Number of properties securing the mortgage

If there is more than one property securing the mortgage, enter in box 9 the total number of properties secured by this mortgage. If only one property secures the mortgage, you may leave this box blank.

Box 10 – Other

Enter any other item you wish to report to the payer, such as real estate taxes, insurance paid from escrow, or, if you are a collection agent, the name of the person for whom you collected the interest.

Box 11 – Mortgage acquisition date

If you acquired the mortgage in the calendar year, enter the date of acquisition. Otherwise, leave this box blank.

Remember, not all boxes will be filled out on every 1098 form. Only the relevant boxes for the specific payments made will have amounts or indicators.

Can you correct a 1098?

Yes, you can correct a 1098. Please see the corrections and negations section for details.

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