If you’re a homeowner or student, you've likely received a Form 1098 in the mail or through electronic delivery. These important tax preparation documents provide essential information about potentially tax-deductible expenses you've paid throughout the year. But what exactly is a 1098 form, and how can it benefit you during tax season?
At Lewis CPA, we’ve compiled this comprehensive guide to explain everything you need to know about Form 1098, its various types, and how to use it effectively when filing your taxes.
What Is a 1098 Form?
A Form 1098 is a tax form that details specific expenses you've paid that might qualify for tax deductions. The most common version is the mortgage interest statement that shows the amount of interest, insurance premiums, and points paid on a mortgage.
Financial institutions, educational institutions, and other organizations must file these informational returns with the Internal Revenue Service (IRS) and provide copies to individuals who paid qualifying expenses.
The standard Form 1098, Mortgage Interest Statement, reports mortgage interest (including points) of $600 or more received during the year during a trade or business from an individual, including a sole proprietor. Lenders report only interest on mortgages, which are defined as obligations secured by real property.
Types of 1098 Forms
There are several variations of the 1098 form, each serving a specific purpose:
Form 1098: Mortgage Interest Statement
This is the standard 1098 form that mortgage providers complete for loans on which they earned over $600 of interest throughout the year. If you're a mortgage holder as an individual or sole proprietorship and have paid $600 or more in interest or points on your mortgage within the last year, you'll likely receive this form from your lender.
The purpose of this form is to report mortgage interest and related expenses paid on a home mortgage. Mortgage interest is the interest you pay on real property, which includes land and anything built or grown on or attached to the land.
Form 1098-E: Student Loan Interest Statement
Form 1098-E, also known as the Student Loan Interest Statement, reports the amount of money a taxpayer puts toward student loan interest. Your student loan servicer (who you make payments to) will send you a copy if the interest you paid, met, or exceeded $600 for the tax year. This form helps determine if you're eligible to deduct a portion of the student loan interest you paid on your federal tax return.
Form 1098-T: Tuition Statement
Eligible educational institutions use Form 1098-T to report qualified tuition and related expense payments for each enrolled student. The form reports expenses you paid for college tuition that might entitle you to an adjustment to income or a tax credit. Educational institutions file this form for each student they enroll for whom a reportable transaction is made.
Form 1098-C: Contributions of Motor Vehicles, Boats, and Airplanes
Form 1098-C relates to donating a motor vehicle, boat, or airplane. If a taxpayer donates a qualified vehicle valued at more than $500, the charitable organization that receives it will file a Form 1098-C with the IRS. The donor receives a copy and may be able to claim a tax deduction for the contribution.
Who Receives Form 1098?
It depends, as different types of Form 1098 are sent to different recipients based on the nature of the transaction. Here’s what you need to know.
Form 1098: Mortgage Interest Statement
Mortgage lenders will send a Form 1098 to the IRS and a copy to the primary mortgage borrower. Lenders must send this form when you pay $600 or more in interest. If you have more than one mortgage, you’ll receive a separate Form 1098 for each one.
If you’re a homeowner with 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.
Form 1098-E: Student Loan Interest Statement
Student loan servicers send Form 1098-E to borrowers who have paid $600 or more in student loan interest. The IRS also receives a copy. Your student loan servicer will send you this form via email or postal mail if the interest you paid met or exceeded the threshold.
Form 1098-T: Tuition Statement
Educational institutions are required to provide a completed IRS Form 1098-T to all students for whom a reportable transaction is made, then report qualified financial data to the IRS. The form includes information about qualified education expenses. According to the IRS, these include tuition, fees, and course materials needed for a student to be enrolled at or attend an eligible educational institution.
How to Use Form 1098 When Filing Taxes
Taxes can be complicated, and Form 1098 factors in. The information reported on Form 1098 directly impacts how you complete various sections of your tax return to claim eligible deductions or credits.
Mortgage Interest Statement (Form 1098)
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. Be sure to retain this form in the case of an IRS tax inquiry or audit.
Key information on the form includes:
- Box 1: Shows the total mortgage interest you paid.
- Box 5: Mortgage insurance premiums.
- Box 6: Mortgage points you might be able to deduct.
For mortgage interest to be deductible, certain requirements must be met: you must own the home and be legally liable for the debt (or considered an equitable owner). You'll use Tax Form 1040 (Schedule A) when filing your taxes to claim the deduction.
Student Loan Interest Statement (Form 1098-E)
The maximum interest deduction for student loans has been set by the Internal Revenue Service at $2,500 per tax year, regardless of how much interest you paid for the year. Some stipulations can impact your student loan interest deduction. For example, you cannot take the deduction if your Modified Adjusted Gross Income (MAGI) falls under certain thresholds.
Tuition Statement (Form 1098-T)
If you're doing your taxes online, the tax preparation software you're using will have a place for you to enter the information from your 1098-T form. After you've entered your qualifying expenses, you may be able to claim an education credit such as the American Opportunity Tax Credit or the Lifetime Learning Credit.
The form includes important information such as:
- Box 1: Shows amounts paid for qualified tuition and related expenses.
- Box 4: Shows any adjustments the school has made to qualified expenses reported on a previous year's 1098-T.
- Box 5: Shows the amount of scholarships and grants paid directly to the school.
- Box 8: Indicates if the student is enrolled at least half-time.
- Box 9: Indicates if the student is enrolled in a graduate program.
How to File Form 1098
Now that we know more about Form 1098, let’s explore the filing process. It's important to understand that as an individual taxpayer, you don't file Form 1098 yourself. Instead, organizations that provide the forms (lenders, educational institutions, etc.) are responsible for filing them with the IRS. As a recipient, you'll use the information on the form when completing your tax return.
If you're an organization that needs to file Form 1098, you’ll file a separate Form 1098 for each mortgage. If applicable, the payment of points and mortgage interest must be included. The forms must be sent to recipients by January 31 of the following year.
You may be feeling overwhelmed, and we never want that to be the case. At Lewis.cpa, we understand the complexities of these filing requirements and can help ensure your organization submits these forms accurately and on time.
Form 1098 & Tax Savings: Organize with Lewis.cpa
Form 1098 and its variations are vital in documenting expenses that may qualify for valuable tax deductions and credits. Whether you're a homeowner deducting mortgage interest, a student claiming education credits, or a borrower deducting student loan interest, understanding these forms can help you maximize your tax benefits.
Ready to get started? Our vibrant full-service public accounting firm is here to help. Contact us to keep all your Form 1098 documents organized and understand how to use them effectively to make the tax filing process smoother and potentially reduce your overall tax liability.
