In an effort to help make filing taxes easier this year, we are breaking down the various IRS tax forms to help you know if you need them, and how to use them.
There are multiple versions of Form 1098: the 1098, the 1098-C, 1098-E, and 1098-T.
The original 1098 form is used to report mortgage interest to the Federal Government, as well as to the person who paid the interest. That person can then deduct the interest they paid on Schedule A.
Deducting this interest requires you to itemize your deductions. So, if your mortgage interest is below your standard deduction, you may not want to itemize unless you have other deductions that, including your mortgage interest, add up to exceed the standard deduction for your filing status. You can also deduct any points paid when you get a new mortgage, either when purchasing a home or as part of a refinance, and those are reported on this form as well.
Amounts you paid for homeowners’ insurance are listed here if you pay it through your escrow account with your mortgage servicer. If you pay for home insurance directly, it will not be listed and you will need to keep track of the amounts you paid.
If you donate a vehicle to a charitable organization (this also includes boats and airplanes), you’ll receive a 1098-C from the charity. These vehicles are frequently given to needy individuals, or sold to them at below-market rates. This form confirms that you weren’t part of that transaction. However, if the car’s value is less than $500, you may not receive one of these forms. Read the instructions for Form 1098-C for more information.
Paying for college is expensive, but luckily you can get a tax break on the interest you’ll be paying for what may seem like the rest of your life. Each year, from each of your student loan servicers, you’ll receive a 1098-E detailing how much interest you paid that year. This interest is directly deductible from your income on your 1040 – no itemizing required – as long as you meet the income requirement.
There is no limit on how much or how little interest you can deduct, as long as all of the loans were used to pay for qualified expenses while you were in school. However, the deduction does phase out if your modified adjusted gross income is above or equal to $75,000 if you file as an individual, or $155,000 if you file a joint return. If you didn’t pay very much interest during the year, the servicer may not send you a 1098-E, but you can still deduct this interest as long as you have a record of how much interest you paid. If you don’t know, call the servicer to ask, and record it in your tax file. You can still deduct the interest you paid even if you don’t receive a 1098-E.
Keep in mind that if your parents are paying student loans in your name for you (or someone else is), the money is considered a gift, and you can still deduct the interest on your own taxes. However, if the loan is in someone else’s name, that person is entitled to take the interest deduction as long as he or she is the one paying on it.
If you are or one of your dependents is currently in school, the school will send a 1098-T at the end of the year detailing all fees that were paid to it for tuition and other necessary educational expenses. Use this form to calculate education-related tax deductions and credits, such as the tuition and fees deduction, the Lifetime Learning Credit, or the American Opportunity Credit.
The amounts on the form encompass all money you paid to the school, even if you paid in advance – the payment appears on the tax form for the year in which it was actually paid. For example, if you pay your spring semester tuition in the winter, it will show up on the prior year’s 1098-T. These amounts include any money used from loans to pay for tuition, and list college scholarships and grants separately.
Keep in mind that some expenses, such as college textbooks and other supplies, are not generally reported on the 1098-T, but can still be used to claim educational tax credits or deductions. However, expenses must be considered qualified expenses by the IRS in order to deduct them.