IRS Form 1098: Mortgage Interest Statement Explained

Your mortgage interest may save you thousands at tax time — but only if you understand how to claim it. Each January your lender sends Form 1098, the Mortgage Interest Statement, reporting what you paid. The Tax Cuts and Jobs Act of 2017 reshaped this deduction dramatically: it capped deductible mortgage debt at $750,000, eliminated most home equity loan interest deductions, and nearly doubled the standard deduction, meaning far fewer homeowners now benefit from itemizing at all.

History and Origin

The mortgage interest deduction is one of the oldest provisions in the U.S. tax code. When the modern income tax was established by the Revenue Act of 1913, all personal interest payments; including mortgage interest — were deductible. This was not specifically designed to encourage homeownership; it was simply a broad policy that treated interest as a cost of earning income.

Over time, the mortgage interest deduction became politically untouchable, widely regarded as a pillar of the "American Dream" of homeownership. Congress eliminated the deduction for most personal interest (credit card interest, car loan interest, etc.) in the Tax Reform Act of 1986, but preserved the mortgage interest deduction. The 1986 act set the original $1 million cap on acquisition indebtedness and allowed interest on up to $100,000 of home equity debt.

Form 1098 became the standard reporting mechanism for lenders. Any financial institution that receives $600 or more in mortgage interest from a borrower during the year must issue a Form 1098 by January 31. The form reports the interest paid, points paid on purchase (which are also deductible), the outstanding mortgage principal, property tax paid from escrow, and — since 2016; the address of the property securing the mortgage.

The TCJA of 2017 made the main changes to the mortgage interest deduction in over 30 years. For mortgages originating after December 15, 2017, the cap was reduced to $750,000. The home equity interest deduction was eliminated entirely unless the equity funds were used for home improvement (buying, building, or substantially improving the home securing the debt). Perhaps most impactfully, the doubling of the standard deduction to $24,000 for married couples meant that millions of homeowners who previously itemized found the standard deduction more advantageous.

Who Files It and When

You do not file Form 1098; your mortgage lender files it with the IRS and sends you a copy. You receive the form and use the information to claim the mortgage interest deduction on Schedule A (Itemized Deductions) of your Form 1040.

To deduct mortgage interest, you must:

• Itemize deductions (choose Schedule A instead of the standard deduction)
• Be legally liable for the mortgage (it must be your debt, not someone else's)
• Use the home as your primary residence or second home (rental property interest is deducted on Schedule E, not Schedule A)
• Have a mortgage that qualifies; acquisition indebtedness (used to buy, build, or substantially improve the home) up to the applicable limit

The applicable mortgage limits are:

• $750,000; for mortgages originating after December 15, 2017 (single or MFJ)
• $375,000; for married filing separately (post-TCJA mortgages)
• $1,000,000; for mortgages originating on or before December 15, 2017 (grandfathered)
• $500,000; for married filing separately (grandfathered mortgages)

Key Sections Explained

Box 1; Mortgage Interest Received

This is the total interest you paid on the mortgage during the calendar year. This is typically the amount you enter on Schedule A, Line 8a, assuming your mortgage does not exceed the applicable limit.

Box 2; Outstanding Mortgage Principal

The outstanding balance of the mortgage as of January 1 of the reporting year. This helps the IRS verify whether your mortgage exceeds the deduction limit. If you have multiple mortgages totaling more than $750,000, you must prorate the deductible interest.

Box 3; Mortgage Origination Date

The date the mortgage originated. This determines which cap applies; $750,000 for post-December 15, 2017 mortgages or $1,000,000 for grandfathered mortgages.

Box 5 — Mortgage Insurance Premiums

Private mortgage insurance (PMI) premiums paid during the year. The deductibility of PMI has been extended and expired multiple times. Check current law to determine whether this amount is deductible in the current tax year.

Box 6 — Points Paid on Purchase

Points (prepaid interest) paid at closing on the purchase of a primary residence. Generally, points paid to obtain a mortgage for buying or building your main home are fully deductible in the year paid. Points paid for refinancing must be amortized over the life of the loan.

Box 10 — Property Taxes from Escrow

Real estate taxes paid from escrow during the year. This amount may be deductible on Schedule A, subject to the SALT (State and Local Tax) deduction cap — $40,000 for 2025+ ($40,400 for 2026) under the One Big Beautiful Bill Act, phasing out above $500,000 MAGI.

Common Mistakes

• Itemizing when the standard deduction is higher. After the TCJA, the standard deduction is $16,150 (single) or $32,300 (MFJ) for 2026. Unless your total itemized deductions (mortgage interest, state/local taxes up to $40,400, charitable contributions, etc.) exceed the standard deduction, you gain no tax benefit from mortgage interest.
• Deducting interest on a mortgage over the limit. If your total mortgage debt exceeds $750,000, you must calculate the deductible portion using IRS Publication 936. Only the interest attributable to the first $750,000 of debt is deductible.
• Deducting home equity loan interest for non-qualified purposes. Post- TCJA, home equity loan interest is only deductible if the funds were used to buy, build, or substantially improve the home securing the loan. Using a home equity loan for college tuition, debt consolidation, or a vacation no longer qualifies.
• Double-counting points on refinance. Points paid on a refinance cannot be deducted all at once — they must be amortized over the loan term. However, if you refinance again, the remaining unamortized points from the previous refinance can be deducted in full in that year.
• Not claiming interest paid at closing. When you buy a home, you typically pay interest from the closing date through the end of the month. This "prepaid interest" may not appear on Form 1098 if you bought late in the year and your first regular payment is in the following year. Check your closing disclosure.

Recent Changes

The TCJA provisions affecting mortgage interest are currently set to expire after 2025. If they expire without extension, the mortgage debt cap would revert to $1 million, the home equity interest deduction would be restored for all purposes, and the standard deduction would return to pre-TCJA levels. This would significantly increase the number of homeowners who benefit from itemizing and deducting mortgage interest.

However, as of 2025, there is significant legislative uncertainty about whether these provisions will be extended, modified, or allowed to expire. Homeowners and prospective buyers should monitor developments closely, as the outcome could substantially affect the after-tax cost of homeownership.

For more information, visit the official IRS page for Form 1098.

This article is educational and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.