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Guide to 1098 Mortgage Interest Statements

Guide to 1098 Mortgage Interest Statements

Each year, taxpayers must file Form 1098, Mortgage Interest Statement, with the Internal Revenue Service (IRS) for their mortgages and provide this statement to you. This statement helps homeowners submit tax forms required by the IRS to help them take advantage of the housing tax deduction.


Mortgage Interest

Mortgage interests are property value limits to the mortgage interest deduction, and if you're unsure how this information applies to your tax return, consult a tax professional. That said, many homeowners can deduct mortgage interest on their qualifying homes.

A primary or vacation residence will generally be included in the definition of a qualifying residence.

Whether you refinance your mortgage during the year or bought a new home and sold an existing home, be sure to get mortgage interest statements for all applicable mortgages to accurately report the amount of interest paid and maximize the deduction.


Prepaid Mortgage Interests and Points 

Under the mortgage interest deduction, homeowners can deduct prepaid mortgage interest and/or points associated with the mortgage transaction, sometimes even for a specific year. In addition, credit companies must report this information in certain cases on Form 1098.

To ensure you have the most accurate information regarding the number of points paid for your mortgage, it will be important to keep your closing documents and refer to them when filing your income tax return.

It is essential to note that there are strict regulations when you claim prepaid interest and/or points on your taxes. We recommend you speak with a tax preparation professional if you have any questions.


Mortgage Insurance

As in the past, mortgage insurance premiums are again deductible for the tax year. Eligible mortgage insurance premiums include private mortgage insurance (PMI) associated with conventional loans and FHA Mortgage insurance premiums (MIP). Additionally, you can deduct USDA bond fees and VA financing fees.


Local Property Taxes

Another potentially deductible item is property taxes, also known as local property taxes. You will also find this information in section 1098, marked as information only. 

If you sold your home within the previous year, the federal government considers you the person who paid your property taxes up to the day you sold the property. You can deduct taxes on this property for the part of the year you lived there. The IRS has instructions on this, but if the math confuses you, we recommend talking to a tax professional.


FAQs About 1098 Mortgage Interest Statements

Now that we've covered the basics of your mortgage interest statement, we'd like to finish by answering some frequently asked questions.


Who receives a corrected 1098 statement?

If you later determine that any information on 1098 is inaccurate due to an error or updated IRS guidance, you will be issued a corrected statement. Note that a correction will not be sent if the error is only on page 2 (the bottom half of your 1098). This is a consumer copy and has not been reported to the IRS.

To learn more about what this means for your taxes, we recommend consulting the IRS or a tax professional.


I pay interest on the mortgage. Can I claim the deduction even if it does not appear on the mortgage?

You can claim the deduction as long as someone else, on the mortgage or otherwise, does not claim the same deduction. If you are unsure what is best to do in your situation, we recommend speaking with a tax advisor.


I paid more interest in another month than the statement shows. Why is that?

Every tax year, you can only deduct mortgage interest for 13 months of payments, including January of the following year. This is because mortgage interest is paid sometime after the actual interest has been charged. January is included because the interest accrued in December of the previous year.


I have a VA loan and am not paying mortgage insurance. What is the number included in box 5?

As noted above, VA funding fees are tax deductible. In the eyes of the IRS, this finance charge serves as a mortgage insurance payment.

Box 5 would include a charge for the full amount of your VA finance charge if you paid upfront or the amount you paid last year if you added it to your balance.


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