How do I File Income Tax Form 1098: Mortgage Interest Statement?

by Alia Nikolakopulos, Demand Media

    The IRS's Form 1098 mortgage interest statement lists deductible interest and other loan-related expenses. For many taxpayers, the mortgage interest deduction is one of the largest, if not the largest, deductions available. Claiming it can mean big savings on your tax bill. To qualify for these deductions, you must be legally responsible for making the mortgage payments. This typically means the loan is in your name, but an exception applies when you file a joint return and only one spouse is responsible for the loan. In this instance, the deductions can still be made on Schedule A, even when only one of you is legally responsible for paying the loan.

    Step 1

    Report the amounts shown in Box 1 of your From 1098 on line 10 of Form 1040 Schedule A. Box 1 shows the amount of mortgage interest you paid on your loan during the year. You can deduct interest paid on your first and any second mortgages.

    Step 2

    Report amounts shown in Box 2 on Schedule A, line 12. Points are expenses you pay to obtain your home loan and are usually based on a percentage of your first mortgage. You can deduct points in the year paid, except for points you pay on refinanced loans. When you refinance, you must allocate the points over the life of the loan. For example, if you pay $500 in points for a refinance and the loan term is 15 years, divide $500 by 15 to determine the points you can deduct in the current year.

    Step 3

    Report mortgage insurance premiums shown in Box 4 on Schedule A, line 13. If you bought your home less than five years ago and put less than 20 percent down, you probably pay mortgage insurance. The amount of your premium is based on a percentage of your home loan.

    Step 4

    Report real estate taxes shown in Box 4 on Schedule A, line 6. Real estate taxes are only shown on Form 1098 when you pay the taxes through escrow. You pay your taxes through escrow when your monthly mortgage payment includes a portion of your tax bill. If you paid the taxes through escrow, but the amount doesn't appear on your 1098, contact your lender for the amount or check the county assessor website for your property tax payment details.

    Step 5

    Look at Box 3 of the 1098. If an amount is shown, you received a refund during the year for mortgage interest you overpaid. If you overpaid and received the refund in the same year, simply reduce the refund in Box 3 from the interest amount shown in Box 1. Report your adjusted interest on Schedule A, line 10. However, if you received the refund for an over-payment from an earlier year, in most cases you’ll need to report the amount as “Other Income” on line 21 of your 1040 form.

    Tip

    • If the sum of all Schedule A deductions is less than your standard deduction amount (the regular deduction amount for your filing status), do not claim Form 1098 on your return unless you're claiming the income from an interest over-payment refund shown in Box 3.

    Warning

    • If you use more than $100,000, or $50,000 if single or married filing separately, of your loan proceeds for anything other than to buy, repair or improve your home, or if you used loan proceeds for home-related expenses and your total mortgage is more than $1 million, your Schedule A deduction may be limited. See IRS Publication 936 for details.

    About the Author

    With a background in taxation, Alia Nikolakopulos specializes in business and personal finance topics. She is an IRS enrolled agent pursuing a Bachelor of Science in accounting and journalism at the Metropolitan State University of Denver.