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What To Do With Your 1098 Forms 
 
by kmhagen September 28, 2005

The 1098 forms you receive after the end of the year are to report expenses you paid or incurred, for which you may be able to claim certain tax deductions or credits. The reporting institutions are obligated to provide this information to you as the taxpayer, and to the Internal Revenue Service.

After the year has ended, there are several different tax reporting forms that you may receive.  One of the most common is your W-2, reporting your total earnings from your employer during the year, and the tax that was withheld on those earnings, among other information.  Other reporting forms include the 1098 and 1099 series.  Each of the various different forms contains information you may need to report on your income tax return.  The 1098 forms report expenses you paid or incurred that may qualify you for certain tax deductions or credits, and the 1099 forms report income you received or that was credited to your account, that you may have to report on your tax return.

1098 Statements – Expenses for Tax Deductions or Credits

The following is a brief description of the purpose and contents of the 1098 statements, and how the information should be reported on your tax return.

1098 – Mortgage Interest Statement 

Interest you pay on a qualified home mortgage loan is generally deductible as an itemized deduction.  The amount reported in box 1 is the interest you paid for the year.  This should be reported on line 10 of Schedule A of Form 1040 if you itemize deductions.

The amount in box 2 represents the points that were paid when you purchased a home.  Points are also generally deductible as interest, and the amount reported as points on your 1098 statement should be included with the mortgage interest from box 1 and reported on the same line 10 of Schedule A, provided you paid those points.  The amount reported in box 2 represents the points paid by you or the seller for the purchase of your principal residence.  If these points were paid by the seller, they would have to be subtracted from the basis of your residence.

Not all points have to be reported on the 1098 statement.  There may be other points you paid directly, that are included in the settlement statement for the purchase of your home.  If you paid any other points that are not included on the 1098 statement, you should deduct them on the separate line for that purpose on Schedule A.

A refund of overpaid interest, reported in box 3, should be reported as “Other Income” on line 21 of Form 1040 if you deducted the corresponding interest expense as an itemized deduction in a previous year.

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