A Form 1098 is a tax document that reports amounts that may affect a tax filer’s adjustments to income or deductions from their income on their annual tax return. There are several variations of the form—some are used to report amounts paid and some are used to report charitable contributions made. Any of the forms a person may receive are important documents to refer to when completing annual income tax returns.
Reasons for Getting a Form 1098
There are several variations of Form 1098. The standard form, Mortgage Interest Statement, is probably the one most people are familiar with. It reflects mortgage interest a borrower paid in a calendar year. If a borrower paid $600 or more in interest on a mortgage debt in a calendar year, they should receive a Form 1098 to use when completing their annual tax return. The form includes the amount of mortgage interest paid and any refund of overpaid interest, the outstanding mortgage balance, mortgage insurance premiums paid, and other amounts related to the mortgage loan.
1098-T vs. 1098-E
For those who have paid tuition to a college or university or who have paid interest on student loan debt, the Forms 1098-T and 1098-E may be familiar.
• Form 1098-T, Tuition Statement, includes amounts of payments received by the school for qualified tuition and related expenses. It also includes amounts of scholarships and grants a student may have received, adjustments to those scholarships and grants, and other information.
• Form 1098-E is a Student Loan Interest Statement. Lenders who receive interest payments of $600 or more from a student loan borrower in a calendar year must provide this form to the borrower. The form includes the amount of student loan interest paid by the borrower, the account number assigned by the lender, and other information.
Other Variations of Form 1098
• Form 1098-C is connected with a very specific form of charitable giving. It shows any donation a tax filer made to a qualifying charity or non-profit of a car, truck, van, bus, boat, or airplane worth more than $500 and that meets other requirements.
• Form 1098-F shows any court-ordered fines, penalties, restitution or remediation a person has paid.
• Form 1098-MA reflects mortgage assistance payments made by a State Housing Finance Agency (HFA) and mortgage payments made by the mortgage borrower, the homeowner.
• Form 1098-Q is connected with a specific form of retirement-savings vehicle, called a Qualifying Longevity Annuity Contract. This form is a statement showing the money the annuity holder received from such a contract over the course of a calendar year.
Using Form 1098 at Tax Time
For homeowners who are still paying mortgage payments, Form 1098-Mortgage Interest Statement, is an important part of completing a tax return. A tax filer’s deductions depend on a number of specific factors, but there are some general rules to keep in mind when looking at Form 1098.
• The debt must be secured by real property.
• The real property that secures the debt must be a main or second home.
• Mortgages taken out after Dec. 31, 2017, must total $750,000 or less. Those taken out before that date must total $1 million or less.
• Separate forms will be provided for each qualifying mortgage.
• It is necessary to itemize deductions on a tax return to claim the mortgage interest deduction.
The potential deduction of interest paid on student loans, shown on Form 1098-E, follows different rules. Notably, this deduction is an adjustment to a tax filer’s income, so it’s not necessary to itemize deductions.
• The student loan interest deduction is limited to $2500 or the amount actually paid, whichever is less.
• The deduction is gradually phased out at certain income levels. For tax year 2021, tax filers with a modified adjusted gross income of $85,000 or more ($170,000 or more if filing a joint return) cannot claim the deduction at all.
Form 1098-T provides information that will be useful for tax filers who qualify for education credits provided by the American Opportunity Credit or the Lifetime Learning Credit.
• The American Opportunity Credit may be claimed by certain tax filers who paid qualified higher education expenses. To claim the credit, certain qualifications must be met, including income level, dependency status, the type of program the student is enrolled in, the enrollment status of the student, among others. The maximum credit is $2500 per eligible student and may be claimed for only four tax years per eligible student.
• The Lifetime Learning Credit may also be claimed by certain tax filers who paid qualified education expenses, but has some differences from the American Opportunity Credit. The annual limit is $2000 per tax return (not per student). It’s not limited to college-related expenses—courses to acquire or improve job skills are also eligible. There is no limit on the number of years this credit can be claimed, and there is no minimum number of hours a student must be enrolled.
Both the American Opportunity Credit and the Lifetime Learning Credit have income phase-out levels. Like the student loan interest deduction provided by Form 1098-E, both of these credits are adjustments to income and don’t require a tax filer to itemize deductions.
Any of the variations of Form 1098 contain important information for filing your 2021 taxes. They all include financial information that has the potential to affect the amount of money a tax filer may be able to deduct. For specific information about a tax situation, it’s recommended to talk to a tax professional. The information in this article is only intended to be an overview, not tax advice.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.