Tax Preparation and Mortgages
It’s a new year and taxes may not be the first thing on your mind. And maybe you totally forgot where you filed that closing statement from the previous year. So listen up new homeowners: although taxes are not a sexy subject, make sure you are taking full benefit of your mortgage payments. I came across an article written by Craig Wales for Guaranteed Rate Affinity mortgage lenders, explaining the forms and next steps. Take the few minutes to go over this important information. Even if you are with a different mortgage lender, this is still applicable info.
If we worked together the previous year and you need any information, please reach out at any time.
Breaking Down Your Year-End Mortgage Tax Forms
By Craig Wales on 12/28/2022
If you're not excited for your mortgage tax documents, you should be, if only for the mortgage interest deduction. Your year-end mortgage statement will have the details that let you itemize your taxes to deduct any mortgage interest you paid from your income. There are some additional rules beyond that, which is why it's essential to consult with a tax professional, but you should at least be happy to see that mortgage tax form arrive in your mailbox.
What can you expect from your mortgage interest statement (1098)? We’re here to give you the full rundown on this end-of-year document:
WHAT IS A MORTGAGE INTEREST STATEMENT (1098)?
A year-end statement, (also known as IRS tax form 1098) is essentially a status update on a mortgage. It’s a document that is sent out and shows how much mortgage interest, mortgage points and property taxes have been paid by the borrower that year. It also includes how much the borrower has left on their mortgage.
What’s on a Mortgage Interest Statement
Form 1098 is a standardized IRS form that shows the same information for every lender. It should show the name and address of the mortgage lender, as well as the taxpayer identification number (TIN) of the lender. This number is used by the IRS as a tracking number for all that institution’s tax purposes.
The form also should include your name, address and TIN, which is most likely your social security number. There are also numbered boxes that contain information about your mortgage and your payments for the year.
What each numbered box means
Box 1: Mortgage interest received from payer(s)/borrower(s)*
The amount of interest you paid on the mortgage during the calendar year, including interest on a home equity loan or home equity line of credit (HELOC)
Box 2: Outstanding mortgage principal
This is the amount of the original loan you are still obligated to pay—the original purchase price minus the amount of principal you’ve paid on the loan.
Box 3: Mortgage origination date
The date that the mortgage agreement was originated, most likely the date you closed on the home.
Box 4: Refund of overpaid interest
If for some reason you paid more in interest on your mortgage than you were supposed to, and received a refund for that, it would be listed here.
Box 5: Mortgage insurance premiums
For borrowers who are paying private mortgage insurance (PMI), the amount you paid are listed here.
Box 6: Points paid on purchase of principal residence
If you bought down your mortgage rate by paying for points when you got your loan, that information should be reflected in this box.
Box 7: If address of property securing mortgage is the same as PAYER’S/BORROWER’S address, the box is checked, or the address or description is entered in box 8.
This box confirms that the property being used to secure your mortgage is your residence. If this box is unchecked, additional information is required in Box 8.
Box 8: Address or description of property securing mortgage
If your primary residence isn’t the property that is securing the mortgage, the address of the property that is securing the mortgage should be listed here.
Box 9: Number of properties securing the mortgage
If there is more than one property being used to secure the mortgage, they should all be listed in this box.
Box 10: Other
This is for any miscellaneous information that the lender would like to report to you, such as real estate taxes, insurance paid from escrow or anything else.
Box 11: Mortgage acquisition date
The lender will enter the date that they acquired the mortgage if it was obtained within the previous calendar year.
Mortgage Interest Tax Deduction
The mortgage interest deduction is available to all homeowners with a mortgage. It’s part of the U.S. tax code which allows you to deduct the interest you pay on any loan you may have used to buy, build or make improvements on your home—this includes second homes and vacation homes.
You should know, however, that only about 10% of tax filers itemized their returns during the 2018 tax season after the passage of the Tax Cuts and Jobs Act (TCJA). Before TCJA, the maximum mortgage principal eligible for deductible interest had been $1 million, but now it is $750,000. The law also raised the standard deduction amount to make it easier for taxpayers to save more money on their returns, so now the majority of taxpayers take the standard deduction.
Using a Form 1098 Mortgage Interest Statement
You can claim the mortgage interest you’ve spent on your home for a deduction when you file your federal income taxes.
Here is the catch though: to be able to claim the deduction, you’ll need to itemize your taxes instead of taking a standard deduction. When you do this, you may be able to claim a tax break on up to two homes in which you’ve paid the lender $600 or more. The more you’ve paid in interest on your mortgage, the more likely you will receive some tax savings by itemizing your deductions, including mortgage interest.
When to Expect Your Mortgage Interest Statement
It’s common to receive multiple 1098 forms from any mortgage company or loan servicer that you paid mortgage interest, points, or taxes in a tax year. While each company has their own mail delivery method, all are required to be sent out by January 31. Some companies may even offer digital copies of your statement.
Need More Information on the Mortgage Interest Tax Deduction?
If you’re looking to learn more or have any specific questions about your year-end statement, don’t hesitate to reach out to your loan servicer to help you track down any info needed.
Guaranteed Rate Affinity does not provide tax advice. Please contact your tax adviser with any tax related questions.Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact Guaranteed Rate Affinity for current rates and for more information.
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