Form 1098

2015

Instructions for Form 1098

Department of the Treasury
Internal Revenue Service

Mortgage Interest Statement
Exceptions

Section references are to the Internal Revenue Code unless
otherwise noted.

Future Developments

For the latest information about developments related to Form 1098
and its instructions, such as legislation enacted after they were
published, go to www.irs.gov/form1098.

Reminder
General Instructions. In addition to these specific instructions, you
should also use the 2015 General Instructions for Certain
Information Returns. Those general instructions include information
about the following topics.
Who must file (nominee/middleman).
When and where to file.
Electronic reporting requirements.
Corrected and void returns.
Statements to recipients.
Taxpayer identification numbers.
Backup withholding.
Penalties.
Other general topics.
You can get the general instructions at www.irs.gov/form1098 or
by calling 1-800-TAX-FORM (1-800-829-3676).

Specific Instructions

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 later.
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 if you do, 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) that overpayment, you may have to file Form 1098 to
report the refund (or credit) of the overpayment. See
Reimbursement of Overpaid Interest, later.

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 co-borrower 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 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

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 Who
must report points, later.

Not in the lending business. If you receive mortgage interest of
$600 or more in the course of your trade or business, you are
subject to the requirement to file Form 1098, even if you are not in

Table
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

Aug 12, 2014

Cat. No. 27977Q

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.

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. 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.

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.

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, later.

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).

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 4.
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.

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

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.

Report all interest received on the mortgage as received from the
borrower, except as explained under Seller Payments, later. 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.

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

Also, do not report as interest mortgage assistance payments
provided by HUD's Emergency Homeowners' Loan Program
(EHLP), state housing finance agencies receiving funds allocated
from the Housing Finance Agency Innovative Fund for the
Hardest-Hit Housing Markets (HFA Hardest Hit Fund), or other
similar state programs receiving funding from the EHLP. Instead,
report such payments on Form 1098-MA, Mortgage Assistance
Payments, available at www.irs.gov/form1098MA. For more
information, see Notice 2013-7, available at www.irs.gov/irb/
2013-06_IRB/ar08.html.

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
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Instructions for Form 1098 (2015)

may use box 4 to report to the payer of record any interest paid by
the seller. See Points, next, for information about reporting
seller-paid points in box 2.

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.

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.

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;
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.

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 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.
Reportable points. Report on Form 1098 points that meet all the
following conditions.
1. They are clearly designated on the 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.

Prepaid Interest

Report prepaid interest (other than points) only in the year in which it
properly accrues.
Example. Interest received on December 20, 2015, that accrues by
December 31 but is not due until January 31, 2016, is reportable on
the 2015 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 if you do, you are subject to the
rules in these instructions.

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;

Instructions for Form 1098 (2015)

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
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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.

TIP

Example. In 2013, you received $5,000 of mortgage interest from
the payer/borrower and reported that amount on Form 1098 for
2013. In 2015, you determined that interest due on the mortgage for
2013 was $4,500, and the payer/borrower had overpaid $500. You
refunded the $500 overpayment to the payer/borrower in 2015. If
you received $600 or more of interest on the mortgage from the
payer/borrower in 2015, you must report the $500 refund in box 3 of
the 2015 Form 1098. No change to the 2013 Form 1098 is required.
If, instead of refunding the $500 overpayment, you credited the
payer/borrower's 2015 mortgage interest payments due, $500 is still
shown in box 3, and the interest received from the payer/borrower in
2015 shown in box 1 must include the $500 credit.

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

Account Number

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 2015
General Instructions for Certain Information Returns.

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, earlier. Interest
includes prepayment penalties and late charges unless the late
charges are for a specific mortgage service.

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 year or
as a reimbursement of overpaid interest. For example, if the
borrower paid $5,000 and you reimbursed $500 of that amount in
2015, enter $4,500 in box 1 as interest paid by the borrower. Do not
enter the $500 reimbursement in box 3.

A cooperative housing corporation that receives any 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.

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.

TIP

Box 2. Points Paid on Purchase of Principal
Residence

Statements to Payers of Record

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 2015
General Instructions for Certain Information Returns.

Enter points paid on the purchase of the payer of record's principal
residence. For an explanation of reportable points, see Reportable
points, earlier.

Truncating payer's/borrower's identification number on payee
statements. Pursuant to Treasury Regulations section 301.6109-4,
all filers of this form may truncate a payee’s identification number
(social security number (SSN), individual taxpayer identification
number (ITIN), adoption taxpayer identification number (ATIN), or
employer identification number (EIN)) on payee statements.
Truncation is not allowed on any documents the filer files with the
IRS. See part J in the 2015 General Instructions for Certain
Information Returns for additional information.

Box 3. Refund of Overpaid Interest

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

Box 4. Blank Box

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 this box.

Recipient's/Lender's Name, Address, and
Telephone Number Box

Box 5. Reserved

Enter the name, address, and telephone number of the filer of Form
1098. Use this same name and address on Form 1096.

Payer's/Borrower's Name and Address Boxes

Enter the name and address, in the appropriate boxes, of the person
who paid the interest (payer of record).

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Instructions for Form 1098 (2015)