The 1098 tax form, also known as the Mortgage Interest Statement, is a crucial document for homeowners who want to claim mortgage interest deductions on their tax returns. The form is provided by lenders to borrowers, detailing the amount of interest paid on a mortgage over the course of a year. Here are five tips to help you navigate the 1098 tax form and maximize your mortgage interest deductions:
Tip 1: Understand What the 1098 Form Reports The 1098 form reports the amount of interest you paid on your mortgage during the tax year. This includes interest paid on first and second mortgages, as well as home equity loans. The form will also report any points you paid on your mortgage, which can be deducted as interest. Make sure to review the form carefully to ensure it accurately reflects your interest payments.
Tip 2: Claim Mortgage Interest Deductions on Schedule A To claim mortgage interest deductions, you’ll need to itemize your deductions on Schedule A of your tax return. You can deduct the interest reported on the 1098 form, as well as any additional interest you paid that’s not reported on the form. For example, if you paid interest on a mortgage at closing, you can deduct that interest even if it’s not reported on the 1098 form. Keep in mind that the Tax Cuts and Jobs Act (TCJA) limits the total state and local taxes (SALT) you can deduct to $10,000, which may affect your decision to itemize.
Tip 3: Don’t Forget to Deduct Points Points are prepaid interest that you pay to your lender at closing. If you paid points on your mortgage, you can deduct them as interest on your tax return. The 1098 form will report any points you paid, and you can deduct them over the life of the loan. For example, if you paid 2,000 in points on a 30-year mortgage, you can deduct 66.67 per year for 30 years.
Tip 4: Keep Accurate Records of Mortgage Interest Payments It’s essential to keep accurate records of your mortgage interest payments, including canceled checks, bank statements, and loan statements. This will help you ensure that you’re deducting the correct amount of interest on your tax return. Additionally, if you’re audited, you’ll need to provide documentation to support your deductions.
Tip 5: Consider Consulting a Tax Professional Tax laws and regulations can be complex, and the 1098 form is just one aspect of the tax return process. If you’re unsure about how to claim mortgage interest deductions or have questions about the 1098 form, consider consulting a tax professional. They can help you navigate the tax laws and ensure you’re taking advantage of all the deductions you’re eligible for.
It's worth noting that the IRS has specific rules and limits on mortgage interest deductions. For example, the TCJA limits the deduction for mortgage interest on primary and secondary homes to $750,000 of qualified residence loans. Additionally, the IRS requires that you use the mortgage interest deduction worksheet to calculate your deduction.
In conclusion, the 1098 tax form is an essential document for homeowners who want to claim mortgage interest deductions. By following these five tips, you can ensure that you’re taking advantage of all the deductions you’re eligible for and maximizing your tax savings.
What is the purpose of the 1098 tax form?
+The 1098 form reports the amount of interest you paid on your mortgage during the tax year, which can be deducted on your tax return.
How do I claim mortgage interest deductions on my tax return?
+To claim mortgage interest deductions, you'll need to itemize your deductions on Schedule A of your tax return and report the interest paid on the 1098 form.
Can I deduct points paid on my mortgage?
+Yes, points paid on your mortgage can be deducted as interest over the life of the loan. The 1098 form will report any points you paid.
By understanding the 1098 tax form and following these tips, you can ensure that you’re taking advantage of all the mortgage interest deductions you’re eligible for and minimizing your tax liability.
