The latest version of Form 1098 is available from the IRS for tax season 2022.
Get to Know Form 1098
There are seven different types of 1098 forms, but the one we wanted to talk about today is the original, the plain 1098. Form 1098 is used to help report mortgage interest.
The last year or so has seen a tumultuous housing market, with home prices rising to astronomical prices due to drastic upticks in demand and inflation.
Mortgage interest deductions, like those categorized and reported on form 1098, are not all-encompassing. The IRS defines mortgage interest as interest that is accrued from a loan that originates on your primary or secondary home. A mortgage interest that qualifies for deduction includes:
- Any interest on your home, which is defined as a property that includes sleeping, cooking, and eating facilities: house, condo, co-op, mobile home, boat, or recreational vehicle
- Interest on a second home that is not being rented out (there are specific guidelines for those who rent their homes seasonally and in other piecemeal situations
- Most mortgage insurance premiums
- Late payment fees
- Prepayment penalties
- Home equity loans and home equity lines of credit: if you took out a home equity loan to finance a remodel (a common occurrence with the rise of COVID and the work-from-home boom), you can deduct interest on the amount you used for the renovation
Unfortunately, there are several things that are not deductible when you file a 1098, including mortgage interest on a third or fourth home, reverse mortgage interest, homeowners’ insurances, appraisal and notary fees, down payments, closing costs, home equity loans, and equity loan funds that were not used on the property.
If you worked from home last year, you’ll have to get measurements and do some calculations because you can claim the space in your house that was used for living, but not the space you used for work (this is the opposite of a home office deduction).
1098s in 2022
As of now, the mortgage interest deduction allows you to deduct the mortgage interest you paid on the first $1 million of your first or second home, but if you bought your house after December 15, 2017, you can only deduct the interest from the first $750,000 of the mortgage. There are some exceptions, the most prominent being that any home sold before April 1, 2018, is eligible for the $1 million limit, but only if there was already a binding contract entered before December 15, 2017, to close before January 1, 2018, and the home was purchased before that April 1 date.
For instructions for form 1098, here’s the latest from the IRS.
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