Form 1098, Mortgage Interest Statement: How to report mortgage interest this year

If you already have your Form 1098, Mortgage Interest Statement, you probably have everything you need to claim a home mortgage interest deduction on your tax return.

But, if you’re deducting mortgage interest for your rental or vacation property, your mortgage interest tax process might look a little different than a traditional homeowner and you may have a few more steps to prepare your taxes.

Read on to see how to report mortgage interest for both situations using your mortgage tax form, the 1098. As we dive into this topic.

What is a 1098 form?

IRS Form 1098 reports the amount of mortgage interest, and any related expenses paid on a home mortgage. Mortgage interest is interest you pay on real property (land and anything built or grown on or attached to the land).

• Lenders: Lenders send Form 1098 paid by a primary borrower to report mortgage interest payments above $600 to the IRS. A copy is sent to you and to the IRS. Lenders who are not in the business of lending are not required to issue the 1098. For example, a seller who finances the note on a loan amount is not required to issue a Form 1098 unless they are in the business of lending money.
• Taxpayers: If you are a homeowner and have one or more mortgages, you should receive a Form 1098 for each mortgage where total interest and expenses (like mortgage points) are $600 or more. If your interest is less than $600, you won’t get this form.

You’ll use the tax form to help determine the total amount of interest paid when figuring out your mortgage interest deduction if you itemize your taxes. Taxpayers should also retain this form in the event of an IRS tax inquiry or audit.

What does IRS Form 1098 show?

Your 1098 tax form will show the following information:

• Box 1 – Interest paid, not including points
• Box 2 – Outstanding mortgage principal
• Box 3 – Mortgage origination date
• Box 4 – Refund of overpaid interest
• Box 5 – Mortgage insurance premiums (Mortgage insurance premiums aren’t required to be reported at this time. Points are required.)
• 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.

Deducting mortgage interest using the 1098 tax form as a homeowner

Here we’ll walk you through how to deduct mortgage interest as a homeowner. We’ve broken down the form information into two parts as the rules about what’s eligible to deduct are different.

Deductible mortgage interest:

Rules: For mortgage interest to be deductible, the following requirements must be met:

• You must own the home and be legally liable for the debt (or considered an equitable owner).
• The debt must be secured by the home and used to purchase, construct, or substantially improve a qualified residence and can include a main or second home, line of credit, or home equity loan.
• The maximum amount of the loans is $750,000 ($375,000 if Married Filing Separately).

Where it goes on your return: You’ll use Tax Form 1040 (Schedule A) when filing your taxes to claim the deduction. Using the 1098, calculate how much of your mortgage interest qualifies for the deduction. Then, report the deduction on your tax return on Form 1040 (Schedule A) Line 8a the deductible amount reported in Box 1, deductible mortgage interest, and Box 6, points.

Reporting other form information and amounts not shown on 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 of Schedule A the recipient’s:

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

If there is a portion of the deductible amount or deductible points not shown on Form 1098, 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 on your Form 1098

Using the Form 1098 mortgage form to deduct mortgage interest as a rental property owner

You can deduct mortgage interest on rental property as an expense of renting out a 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, generally mortgage points are prepaid interest so you can’t deduct the full amount in the year you paid them. You must deduct the points over the life of the loan. The amount you can deduct each year is subject to the original issue discount rules. It is generally the difference between:

• The amount you borrowed (redemption price at maturity or on principal) and
• The proceeds (issue price).

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

You must split property expenses if both apply:

• Part of your property was used by you, your friends or your family.
• You rent out another part of your property.

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

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

• Real estate taxes
• Mortgage interest

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

Special Form 1098 and schedule rules for vacation homeowners

As described above, if you didn’t rent out your vacation home, you may be able to deduct the mortgage interest on it according to the same rules as deducting interest for a first or second home.

Use Schedule A to deduct the home mortgage interest. If you used the vacation home personally and rented it out for no more than 14 days in the year:

• You don’t need to report the rental income.
• You can deduct the mortgage interest you paid according to the usual rules.

If you rented out the home for more than 14 days in the year with personal use:

If a residence is used personally for the greater of more than 14 days in the year or 10% of the rental days, then:

• You must report the rental income
• You can deduct expenses related to renting the property. However, deductions are allocated based on the days personally used and are limited to gross rental income. The expenses for rental use are deductible on Schedule E if they qualify. The mortgage interest and real estate taxes for the personal use percentage are deductible on Schedule A.

Use these schedules to report your mortgage interest on Tax Form 1098 from a vacation home used both personally and as a rental:

• 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 of the number of days rented and the number of days:

• You owned the home in the year
• You used the home for personal purposes

Get help with the 1098 form and mortgage interest reporting

Navigating Form 1098 mortgage interest can be tricky. Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible by claiming every tax deduction and credit you deserve.