What To Do With Your 1098 Forms

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 gets withheld on those earnings, among other information.  Other reporting forms include the 1098 and 1099 series.  Each of the various 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 say 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 you should report the information on your tax return.

1098 – Mortgage The 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. You should say it 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 said 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 the seller paid these points, then you would have to subtract it from the basis of your home.

Not all points you have to report on the 1098 statement.  There may be other points you paid directly, that you include in the settlement statement for the purchase of your home.  If you spent any other aspects that you do not add on the 1098 report, 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.

1098-C – Contributions of Motor Vehicles, Boats and Airplanes

You would receive this statement if you donated a vehicle, boat, or airplane with a claimed value of over $500 to a charitable organization.  If the charity (donee) sold the car, then you should check the box 4a, and the charity should send you this form within 30 days after the sale.  In this case, you can take an itemized deduction for a charitable contribution for the gross proceeds from the sale, as reported in box 4c, or the fair market value of the vehicle on the date you contributed it to the charity, whichever is lower.  If your basis in the car was less than contribution, then your deduction may be limited to that amount.

The charitable organization is required to report what it does with the vehicle, boat or airplane you donated.  If the charity did not sell it, you should check either box 5a or 5b.  The charity may use the vehicle in its work or may make substantial improvements (box 5a).  Or it may donate the vehicle to a needy individual, as part of its charitable purpose (box 5b).  In these cases, you can generally take a deduction for the fair market value of the vehicle on the date you donated it, or your basis in the vehicle, whichever is lower.

You must attach Copy B of Form 1099-C to your tax return to claim this deduction.  Otherwise, the deduction will be disallowed.  Generally, you would also have to file Form 8283, Noncash Charitable Contributions.

1098-E – Student Loan Interest Statement

The amount of interest you paid on a qualified student loan you report it in box 1 of this statement.  If your modified adjusted gross income is less than a specified maximum amount, you can deduct this interest as an adjustment to income on Form 1040 or 1040A.  The student must be you, your spouse, or your dependent, and the student must enroll in a degree program at qualified educational institution at least half-time.  The proceeds from the loan must have been used to pay qualified education expenses.  For purposes of this deduction, qualified education expenses include tuition and fees, room and board, books and supplies, and other necessary expenses, including transportation.

1098-T – Tuition Statement

This statement contains different amounts that you may need to report if you are claiming the tuition and fees deduction as an adjustment to income on Form 1040 or 1040A, or you are claiming an education credit – either the Hope credit or the lifetime learning credit, on Form 8863.  The educational institution can report either the total amount it received for qualified education expenses or the total amount it billed.  The amount you say in box 1 represents the total amount the educational institution received from all sources for qualified tuition and related expenses.  If you made all the payments, this would be your total expense, if you are on the cash basis.  If you are on the accrual basis, you may need to use the amount billed in box 2.

For purposes of the tuition and fees deduction, just as in the case of the student loan interest deduction, the student must be you, your spouse, or your dependent. You must require the expenses for enrollment or attendance at an eligible postsecondary educational institution. Unlike the student loan interest deduction, the student does not necessarily have to enroll in a degree program.  And also unlike the student loan interest deduction, expenses for purposes of the tuition and fees deduction do not include personal, living, or family expenses such as room and board.  The educational institution is required to allocate qualified education expenses and personal expenses, such as room and board.  The amount reported on Form 1098-T should be qualified education expenses.  Box 4 shows the scholarships and grants that were processed by the educational institution for your account.  You may have to reduce your allowable costs by this amount in calculating your tuition and fees deduction or an education credit.

Box 3 shows any adjustments to qualified tuition and fees reported on a 1098-T for a prior year.  It may reduce any credit you can claim for prior year expenses.  Box 5 shows adjustments to scholarships and grants reported in a previous year.  It could also affect a deduction or credit you claimed for a prior year.

If you recive any refunds or reimbursements from an insurer, then you would report it in box 7.  This amount would also reduce your allowable expenses for purposes of claiming a tuition and fees deduction or an education credit.

Boxes 8 and 9 are for determining your eligibility for the Hope credit.  Being enrolled at least half-time (box 8) is one of the requirements for the Hope credit.  The student does not have to meet this workload requirement to qualify for the tuition and fees deduction or the lifetime learning credit.  If you enroll in a graduate program (box 9), you are not eligible for the Hope credit, but you may still qualify for the tuition and fees deduction or the lifetime learning credit.

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