Mortgage Interest Statement

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Instructions for Form 1098

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14:42 - 6-JUN-2007

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2008

Department of the Treasury
Internal Revenue Service

Instructions for Form 1098
Section references are to the Internal Revenue Code unless
otherwise noted.

What’s New
Mortgage insurance premiums. The Tax Relief and Health
Care Act of 2006 contains a sunset provision for the
deductibility of these premiums. Therefore, reporting by issuers
of Forms 1098 of mortgage insurance premiums paid by
borrowers after December 31, 2007, to either the Internal
Revenue Service or payers, is no longer required. See Boxes 4
and 5 on page 4.

Reminder
In addition to these specific instructions, you should also use
the 2008 General Instructions for Forms 1099, 1098, 5498, and
W-2G. Those general instructions include information about the
following topics.
• Backup withholding.
• Electronic reporting requirements.
• Penalties.
• Who must file (nominee/middleman).
• When and where to file.
• Taxpayer identification numbers.
• Statements to recipients.
• Corrected and void returns.
• Other general topics.
You can get the general instructions from the IRS website at
www.irs.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Exceptions
You need not file Form 1098 for interest received from a
corporation, partnership, trust, estate, association, or company
(other than a sole proprietor) even if an individual is a
coborrower and all the trustees, beneficiaries, partners,
members, or shareholders of the payer of record are
individuals.

Mortgage Defined
A mortgage is any obligation secured by real property. Use the
table below to determine which obligations are mortgages.
Real property is land and generally anything built on it,
growing on it, or attached to the land. Among other things, real
property includes a manufactured home or mobile home with a
minimum living space of 400 square feet and a minimum width
of more than 102 inches and which is of a kind customarily
used at a fixed location. See section 25(e)(10).
If property that secures the loan is not real property, you are
not required to file Form 1098. However, the borrower may be
entitled to a deduction for qualified residence interest, such as
may be the case for a boat, which has sleeping space and
cooking and toilet facilities, that the borrower uses as a home.
Lines of credit and credit card obligations. Interest (other
than points) received on any mortgage that is in the form of a
line of credit or credit card obligation is reportable regardless of
how you classified the obligation. A borrower incurs a line of
credit or credit card obligation when the borrower first has the
right to borrow against the line of credit or credit card, whether
or not the borrower actually borrows an amount at that time.

Who Must File

Specific Instructions for Form 1098
Use Form 1098, Mortgage Interest Statement, to report
mortgage interest (including points, defined later) of $600 or
more received by you during the year in the course of your
trade or business from an individual, including a sole proprietor.
Report only interest on a mortgage defined below.
The $600 threshold applies separately to each mortgage;
thus, file a separate Form 1098 for each mortgage. You may, at
your option, file Form 1098 to report mortgage interest of less
than $600, but you are subject to the rules in these instructions.
If an overpayment of interest on an adjustable rate mortgage
(ARM) or other mortgage was made in a prior year and you
refund (or credit) such overpayment, you may have to file Form
1098 to report the refund (or credit) of the overpayment. See
Reimbursement of Overpaid Interest on page 3.

File this form if you are engaged in a trade or business and, in
the course of such trade or business, you receive from an
individual $600 or more of mortgage interest on any one
mortgage during the calendar year. You are not required to file
this form if the interest is not received in the course of your
trade or business. For example, you hold the mortgage on your
former personal residence. The buyer makes mortgage
payments to you. You are not required to file Form 1098.
For information about who must file to report points, see
Points on page 2.
Not in the lending business. If you receive $600 or more of
mortgage interest in the course of your trade or business, you
are subject to the requirement to file Form 1098, even if you are
not in the business of lending money. For example, if you are a
real estate developer and you provide financing to an individual
to buy a home in your subdivision, and that home is security for
the financing, you are subject to this reporting requirement.

IF an obligation is...

THEN...

Incurred after 1987

It is a mortgage if real property that is located inside or outside the United States
secures all or part of the obligation.1

Incurred after 1984 but before 1988

It is a mortgage only if secured primarily by real property.

In existence on December 31, 1984

It is not a mortgage if, at the time the obligation was incurred, the interest recipient
reasonably classified the obligation as other than a mortgage, real property loan, real
estate loan, or other similar type of obligation.2

1

This applies even though the interest recipient classifies the obligation as other than a mortgage, for example, as a commercial loan.
For example, if an obligation incurred in 1983 was secured by real property, but the interest recipient reasonably classified the obligation as a commercial loan
because the proceeds were used to finance the borrower’s business, the obligation is not considered a mortgage and reporting is not required. However, it is not
reasonable to classify those obligations as other than mortgages for reporting purposes if over half the obligations in a class established by the interest recipient are
primarily secured by real property.

2

Cat. No. 27977Q

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Instructions for Form 1098

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However, if you are a physician not engaged in any other
business and you lend money to an individual to buy your
home, you are not subject to this reporting requirement
because you did not receive the interest in the course of your
trade or business as a physician.
Governmental unit. A governmental unit (or any subsidiary
agency) receiving mortgage interest from an individual of $600
or more must file this form.
Cooperative housing corporation. A cooperative housing
corporation is an interest recipient and must file Form 1098 to
report an amount received from its tenant-stockholders that
represents the tenant-stockholders’ proportionate share of
interest described in section 216(a)(2). This rule applies only to
tenant-stockholders who are individuals and from whom the
cooperative has received at least $600 of interest during the
year. See the TIP under box 1 on page 4.
Collection agents. Generally, if you receive reportable
interest payments (other than points) on behalf of someone else
and you are the first person to receive the interest, such as a
servicing bank collecting payments for a lender, you must file
this form. Enter your name, address, taxpayer identification
number (TIN), and telephone number in the recipient entity
area. You must file this form even though you do not include the
interest received in your income but you merely transfer it to
another person. If you wish, you may enter the name of the
person for whom you collected the interest in box 5. The person
for whom you collected the interest need not file Form 1098.
However, there is an exception to this rule for any period that
(a) the first person to receive or collect the interest does not
have the information needed to report on Form 1098 and (b) the
person for whom the interest is received or collected would
receive the interest in its trade or business if the interest were
paid directly to such person. If (a) and (b) apply, the person on
whose behalf the interest is received or collected is required to
report on Form 1098. If interest is received or collected on
behalf of another person other than an individual, such person
is presumed to receive the interest in a trade or business.
Foreign interest recipient. If you are not a U.S. person, you
must file Form 1098 if the interest is received in the United
States. A U.S. person is a citizen or resident of the United
States, a domestic partnership or corporation, or a nonforeign
estate or trust. If the interest is received outside the United
States, you must file Form 1098 if (a) you are a controlled
foreign corporation or (b) at least 50% of your gross income
from all sources for the 3-year period ending with the close of
the tax year preceding the receipt of interest (or for such part of
the period as you were in existence) was effectively connected
with the conduct of a trade or business in the United States.
Designation agreement. An interest recipient, including a
recipient of points, can designate a qualified person to file Form
1098 and to provide a statement to the payer of record.
A qualified person is either (a) a trade or business in which
the interest recipient is under common control as specified in
Regulations section 1.414(c)-2 or (b) a designee, named by the
lender of record or by a qualified person, who either was
involved in the original loan transaction or is a subsequent
purchaser of the loan.
A lender of record is the person who, at the time the loan is
made, is named as the lender on the loan documents and
whose right to receive payment from the payer of record is
secured by the payer of record’s principal residence. Even if the
lender of record intends to sell or otherwise transfer the loan to
a third party after the close of the transaction, such intention
does not change who is the lender of record.
The agreement must be in writing, identify the mortgage(s)
and calendar years for which the qualified person must report,
and be signed by the designator and the designee. A designee
may report points on Form 1098 (as having been paid directly
by the payer of record) only if the designation agreement
contains the designator’s representation that it did not lend such
amount to the payer of record as part of the overall transaction.
The agreement need not be filed with the IRS, but the

designator must keep a copy of it for 4 years after the close of
the year in which the loan is made.
A designated qualified person is subject to any applicable
penalties as if it were the interest recipient. Thus, a designator
is relieved from liability for any applicable penalties.

Nonresident Alien Interest Payer
You must file Form 1098 to report interest paid by a nonresident
alien only if all or part of the security for the mortgage is real
property located in the United States.
Report the interest based on the following.
• If the interest is paid within the United States, you must
request from the payer the applicable Form W-8 (withholding
certificate) as described in Regulations section 1.1441-1(e)(1).
• If the interest is paid outside the United States, you must
satisfy the documentary evidence standard described in
Regulations section 1.6049-5(c).

Payer of Record
The payer of record is the individual carried on your books and
records as the principal borrower. If your books and records do
not indicate which borrower is the principal borrower, you must
designate one.
If you permit a subsequent purchaser of the property to
assume the loan without releasing the first purchaser from
personal liability, the subsequent purchaser is the payer of
record. Such subsequent purchaser’s name, address, and TIN
must appear on Form 1098.
Multiple borrowers. Even though there may be more than
one borrower on the mortgage, you are required to prepare
Form 1098 only for the payer of record, and only if such payer
of record is an individual, showing the total interest received on
the mortgage. Even if an individual is a coborrower, no Form
1098 is required unless the payer of record is also an individual.

Payments by Third Party
Report all interest received on the mortgage as received from
the borrower, except as explained under Seller Payments
below. For example, if the borrower’s mother makes payments
on the mortgage, the interest received from the mother is
reportable on Form 1098 as received from the borrower.
However, do not report mortgage interest received from any
governmental unit (or any subsidiary agency). For example, do
not report any interest received as housing assistance
payments from the Department of Housing and Urban
Development (HUD) on mortgages insured under section 235 of
the National Housing Act.

Seller Payments
Do not report in box 1 of Form 1098 any interest paid by a seller
on a purchaser’s/borrower’s mortgage, such as on a
“buy-down” mortgage. For example, if a real estate developer
deposits an amount in escrow and tells you to draw on that
escrow account to pay interest on the borrower’s mortgage, do
not report in box 1 the interest received from that escrow
account. Also, do not report in box 1 any lump sum paid by a
real estate developer to pay interest on a purchaser’s/
borrower’s mortgage. However, if you wish, you may use box 5
to report to the payer of record any interest paid by the seller.
See Points below for information about reporting seller-paid
points in box 2.

Points
You must report certain points paid for the purchase of the
payer of record’s principal residence on Form 1098. You must
report points if the points, plus other interest on the mortgage,
are $600 or more. For example, if a borrower pays points of
$300 and other mortgage interest of $300, the lender has
received $600 of mortgage interest and must file Form 1098.
Report the total points on Form 1098 for the year of closing
regardless of the accounting method you use to report the
points as income for federal income tax purposes.
Who must report points. The lender of record or a qualified
person must file Form 1098 to report all points paid by the

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Instructions for Form 1098

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• Are paid in connection with a loan incurred by the payer of
record to construct (or refinance construction of) a residence
that is to be used, when completed, as the principal residence
of the payer of record;
• Are paid directly by the payer of record; and
• Are not allocable to an amount of principal in excess of $1
million.
Amounts paid to refinance a loan to construct a residence
are not points to the extent they are allocable to debt that
exceeds the debt incurred to construct the residence.

payer of record in connection with the purchase of the principal
residence. If a designation agreement is in effect for a
mortgage, only the person designated in the agreement must
file Form 1098 to report all points on that mortgage. See
Designation agreement earlier.
Amounts received directly or indirectly by a mortgage broker
are treated as points to the same extent they would be treated
as points if paid to and retained by the lender of record. The
lender of record must report those points paid to a mortgage
broker.

Prepaid Interest

Reportable points. Report on Form 1098 points that meet all
the following conditions.
1. They are clearly designated on the Uniform Settlement
Statement (Form HUD-1) as points; for example, “loan
origination fee” (including amounts for VA and FHA loans),
“loan discount,” “discount points,” or “points.”
2. They are computed as a percentage of the stated
principal loan amount.
3. They are charged under an established business practice
of charging points in the area where the loan was issued and do
not exceed the amount generally charged in that area.
4. They are paid for the acquisition of the payer of record’s
principal residence, and the loan is secured by that residence.
You may rely on a signed written statement from the payer of
record that states that the proceeds of the loan are for the
purchase of the payer of record’s principal residence.
5. They are paid directly by the payer of record. Points are
paid directly if either a or b below applies.
a. The payer of record provides funds that were not
borrowed from the lender of record for this purpose as part of
the overall transaction. The funds may include down payments,
escrow deposits, earnest money applied at closing, and other
funds actually paid over by the payer of record at or before
closing.
b. The seller pays points on behalf of the payer of record.
Points paid by the seller to the interest recipient on behalf of the
payer of record are treated as paid to the payer of record and
then paid directly by the payer of record to the interest recipient.

Report prepaid interest (other than points) only in the year in
which it properly accrues.
Example. Interest received on December 20, 2008, that
accrues by December 31 but is not due until January 31, 2009,
is reportable on the 2008 Form 1098.
Exception. Interest received during the current year that will
properly accrue in full by January 15 of the following year may
be considered received in the current year, at your option, and
is reportable on Form 1098 for the current year. However, if any
part of an interest payment accrues after January 15, then only
the amount that properly accrues by December 31 of the
current year is reportable on Form 1098 for the current year.
For example, if you receive a payment of interest that accrues
for the period December 20 through January 20, you cannot
report any of the interest that accrues after December 31 for the
current year. You must report the interest that accrues after
December 31 on Form 1098 for the following year.

Reimbursement of Overpaid Interest
You are required to report reimbursements of overpaid interest
aggregating $600 or more to a payer of record on Form 1098.
You are not required to report reimbursements of overpaid
interest aggregating less than $600 unless you are otherwise
required to file Form 1098. That is, if you did not receive at least
$600 of mortgage interest during the year of reimbursement
from the person to whom you made the reimbursement, you are
not required to file Form 1098 merely to report a reimbursement
of less than $600. However, you may report any reimbursement
of overpaid interest that you are not otherwise required to
report, but you are subject to the rules in these instructions.
The reimbursement must be reported on Form 1098 for the
year in which the reimbursement is made. No change should be
made to the prior year Form 1098 because of this
reimbursement. Report the total reimbursement even if it is for
overpayments made in more than 1 year.
To be reportable, the reimbursement must be a refund or
credit of mortgage interest received in a prior year that was
required to be reported for that prior year by any interest
recipient on Form 1098. Only the person who makes the
reimbursement is required to report it on Form 1098. For
example, if you bought a mortgage on which interest was
overpaid in a prior year, you made a reimbursement of the
overpaid interest, and the previous mortgage holder was
required to report mortgage interest on Form 1098 in the prior
year, you must file Form 1098 to report the reimbursement
because you are the one making the reimbursement.
Example. In 2006, you received $5,000 of mortgage interest
from the payer/borrower and reported that amount on Form
1098 for 2006. In 2008, you determined that interest due on the
mortgage for 2006 was $4,500, and the payer/borrower had
overpaid $500. You refunded the $500 overpayment to the
payer/borrower in 2008. If you received $600 or more of interest
on the mortgage from the payer/borrower in 2008, you must
report the $500 refund in box 3 of the 2008 Form 1098. No
change to the 2006 Form 1098 is required. If, instead of
refunding the $500 overpayment, you credited the payer/
borrower’s 2008 mortgage interest payments due, $500 is still
shown in box 3, and the interest received from the payer/
borrower in 2008 shown in box 1 must include the $500 credit.
Overpayment and reimbursement in same year. If you
reimburse interest in the same year it is overpaid, do not report
the overpayment on Form 1098 as interest received during the

Report points paid under 5a and 5b on the payer of record’s
Form 1098 in box 2.
Exceptions. Do not report as points on Form 1098 amounts
paid:
• For loans to improve a principal residence;
• For loans to purchase or improve a residence that is not the
payer of record’s principal residence, such as a second home,
vacation, investment, or trade or business property even though
the borrower may be entitled to amortize points paid for the
purchase of a second home, vacation home, etc. and deduct
them over the life of the loan;
• For a home equity or line of credit loan, even if secured by
the principal residence;
• For a refinancing (but see Construction loans below),
including a loan to refinance a debt owed by the borrower under
a land contract, a contract for deed, or similar forms of seller
financing;
• In lieu of items ordinarily stated separately on the Form
HUD-1, such as appraisal fees, inspection fees, title fees,
attorney fees, and property taxes; and
• To acquire a principal residence to the extent the points are
allocable to an amount of principal in excess of $1 million.
Construction loans. Amounts paid on a loan to construct a
residence (construction loan) or to refinance a loan incurred to
construct a residence are reportable on Form 1098 as points if
they:
• Are clearly designated on the loan documents as points
incurred in connection with the loan, such as loan origination
fees, loan discount, discount points, or points;
• Are computed as a percentage of the stated principal loan
amount;
• Conform to an established business practice of charging
points in the area where the loan is issued and do not exceed
the amount generally charged in the area;

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Instructions for Form 1098

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

year or as a reimbursement of overpaid interest. For example, if
the borrower paid $5,000 and you reimbursed $500 of that
amount in 2008, enter $4,500 in box 1 as interest paid by the
borrower. Do not enter the $500 reimbursement in box 3.
Interest on reimbursement. A financial institution (or its
middleman) that pays interest of $10 or more on the
reimbursement must report that interest (under section 6049)
on Form 1099-INT, Interest Income. Others that pay interest of
$600 or more on the reimbursement must report that interest
(under section 6041) on Form 1099-INT. Do not include such
interest on Form 1098.

Box 1. Mortgage Interest Received From
Payer(s)/Borrower(s)
Enter the interest (not including points) received on the
mortgage from borrowers during the calendar year. Include
interest on a mortgage, a home equity loan, or a line of credit or
credit card loan secured by real property. Do not include
government subsidy payments, seller payments, or prepaid
interest that does not meet the exception explained under
Prepaid Interest on page 3. Interest includes prepayment
penalties and late charges unless the late charges are for a
specific mortgage service.

Statements to Payers of Record

A cooperative housing corporation that receives any

If you are required to file Form 1098, you must provide a
statement to the payer of record. For more information about
the requirement to furnish a statement to the payer of record,
see part M in the 2008 General Instructions for Forms 1099,
1098, 5498, and W-2G.

TIP cash part of a patronage dividend from the National
Consumer Cooperative Bank must reduce the interest to
be reported on each tenant-stockholder’s Form 1098 by a
proportionate amount of the cash payment in the year the
cooperative receives the cash payment. See Rev. Proc. 94-40,
1994-1 C.B. 711.

Recipient’s/Lender’s Name and Address Box
Enter the name and address of the filer of Form 1098. Use this
same name and address on Form 1096.

Box 2. Points Paid on Purchase of Principal
Residence

Payer’s/Borrower’s Name and Address Box

Enter points paid on the purchase of the payer of record’s
principal residence. For an explanation of reportable points, see
Points on page 2.

Enter the name and address of the person who paid the interest
(payer of record).

Box 3. Refund of Overpaid Interest

Be careful to enter the recipient’s and payer’s
TIP information in the proper boxes.

Enter the total refund or credit of a prior year(s) overpayment of
interest. See Reimbursement of Overpaid Interest on page 3.

Boxes 4 and 5. Blank Boxes

Account Number

Enter any other item you wish to report to the payer, such as
the address of the property that secures the debt, real estate
taxes, insurance, or if you are a collection agent, the name of
the person for whom you collected the interest. You do not have
to report to the IRS any information provided in these boxes.

The account number is required if you have multiple accounts
for a payer/borrower for whom you are filing more than one
Form 1098. Additionally, the IRS encourages you to designate
an account number for all Forms 1098 that you file. See part L
in the 2008 General Instructions for Forms 1099, 1098, 5498,
and W-2G.

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