What it means
Every January or so, a homeowner with a mortgage normally receives a Form 1098 from the lender or loan servicer. The same information goes to the tax authority, which lets it check that the interest claimed on a tax return matches what the lender reports.
The main figure is the mortgage interest received during the year. Other boxes can show the outstanding principal balance at the start of the year, the date the loan began, points paid when buying the home, and mortgage insurance premiums.
Homeowners who itemise their deductions can generally deduct qualifying home mortgage interest, subject to limits on the size of the loan and the type of property. A second home can qualify, but a property used mainly as a rental is treated under different rules.
Those who take the standard deduction usually gain no extra benefit from the form, but they should still keep it for their records. There is a family of related forms.
Form 1098-E reports student loan interest and Form 1098-T reports tuition paid, and both are separate from the mortgage version despite the similar number. For businesses, the form matters in two ways.
A lender, bank or mortgage servicer must produce it accurately for every qualifying borrower, and a company that owns property through a business entity needs to understand how the interest is reported and who claims it. Errors are common, especially when a loan is sold between servicers during the year or when a property is jointly owned.
The borrower should compare the amount on the form with their own payment records and ask the lender to correct any mistake before filing. A corrected form is better than a return that does not match the lender's report.
In practice
Real-world examples.
Example
A first-time buyer receives a Form 1098 showing the interest paid on her home loan. She gives it to her accountant, who uses it to prepare her itemised deductions. The accountant also checks the points paid at closing, which may be treated differently from regular interest.
Example
A mortgage servicer sells a block of loans to another servicer in October. Each borrower receives two forms for the year, one from each servicer, and the borrower needs to add the interest from both. Forgetting the second form would understate the deduction by several months of interest.
Example
Two unmarried friends buy a house together, and the form arrives in only one name. They split the deduction according to who actually paid the interest and keep a note of their agreement. Each friend then claims only the share they paid, which avoids a mismatch with what the tax authority has on file.
Case study
Seen in the real world.
Brookfield Home Loans is an illustrative, fictional mortgage servicer with 40,000 borrowers. In one year, a system migration caused several hundred forms to be issued with the wrong interest totals.
The compliance team caught the problem when borrowers began calling in January. The company issued corrected forms, set up a dedicated helpline, and sent a letter explaining what to do if a return had already been filed. Staff worked extra hours for three weeks to handle the volume of calls.
In this illustrative case, the servicer added a reconciliation check, comparing the total of interest on the forms with the interest in its general ledger before the forms go out. The lesson is that reporting forms are an extension of the accounting records and need the same level of control. Brookfield now includes the form run in its annual audit plan, with a named owner responsible for sign-off each January.
Watch out
Common mistakes.
- Assuming the form is a bill or a tax return, when it is an information statement that supports a deduction.
- Claiming interest from the form without checking who paid it, when only the person who actually paid and is legally liable can generally claim it.
- Ignoring a second form after a loan transfer, which leaves part of the year's interest unclaimed.
Questions
People also ask.
Do I need to attach Form 1098 to my tax return?
Generally no, because the lender sends a copy to the tax authority, but you should keep your copy with your records. A copy is useful if you are ever asked to support a deduction.
What if I do not receive a form?
Contact the lender, because you may still be able to claim the interest using your own payment records, and the lender may be required to issue one. Keep a note of the date and name of whoever you spoke to.
Is the interest always deductible?
No, deductibility depends on factors such as loan size, how the money was used and whether you itemise, so check the current rules or ask an adviser. The limits and conditions are set by the tax authority and can change from year to year.
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