Instructions For Form 1098 - 2013 (Page 3 of 4) in pdf

Payments. For more information, see Notice 2013-7, available at

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

Seller Payments

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;

Do not report in box 1 of Form 1098 any interest paid by a seller on a

For a home equity or line of credit loan, even if secured by the

purchaser's/borrower's mortgage, such as on a “buy-down”

principal residence;

mortgage. For example, if a real estate developer deposits an

For a refinancing (but see

Construction loans,

below), including a

amount in escrow and tells you to draw on that escrow account to

loan to refinance a debt owed by the borrower under a land contract,

pay interest on the borrower's mortgage, do not report in box 1 the

a contract for deed, or similar forms of seller financing;

interest received from that escrow account. Also, do not report in

In lieu of items ordinarily stated separately on the Form HUD-1,

box 1 any lump sum paid by a real estate developer to pay interest

such as appraisal fees, inspection fees, title fees, attorney fees, and

on a purchaser's/borrower's mortgage. However, if you wish, you

property taxes; and

may use box 4 to report to the payer of record any interest paid by

To acquire a principal residence to the extent the points are

the seller. See

Points

next for information about reporting seller-paid

allocable to an amount of principal in excess of $1 million.

points in box 2.

Construction loans. Amounts paid on a loan to construct a

Points

residence (construction loan) or to refinance a loan incurred to

You must report certain points paid for the purchase of the payer of

construct a residence are reportable on Form 1098 as points if they:

record's principal residence on Form 1098. You must report points if

Are clearly designated on the loan documents as points incurred

the points, plus other interest on the mortgage, are $600 or more.

in connection with the loan, such as loan origination fees, loan

For example, if a borrower pays points of $300 and other mortgage

discount, discount points, or points;

interest of $300, the lender has received $600 of mortgage interest

Are computed as a percentage of the stated principal loan

and must file Form 1098.

amount;

Conform to an established business practice of charging points in

Report the total points on Form 1098 for the year of closing

the area where the loan is issued and do not exceed the amount

regardless of the accounting method you use to report the points as

generally charged in the area;

income for federal income tax purposes.

Are paid in connection with a loan incurred by the payer of record

Who must report points. The lender of record or a qualified

to construct (or refinance construction of) a residence that is to be

person must file Form 1098 to report all points paid by the payer of

used, when completed, as the principal residence of the payer of

record in connection with the purchase of the principal residence. If

record;

a designation agreement is in effect for a mortgage, only the person

Are paid directly by the payer of record; and

designated in the agreement must file Form 1098 to report all points

Are not allocable to an amount of principal in excess of $1 million.

on that mortgage. See

Designation agreement

earlier.

Amounts paid to refinance a loan to construct a residence are not

Amounts received directly or indirectly by a mortgage broker are

points to the extent they are allocable to debt that exceeds the debt

treated as points to the same extent they would be treated as points

incurred to construct the residence.

if paid to and retained by the lender of record. The lender of record

Prepaid Interest

must report those points paid to a mortgage broker.

Reportable points. Report on Form 1098 points that meet all the

Report prepaid interest (other than points) only in the year in which it

following conditions.

properly accrues.

1. They are clearly designated on the Settlement Statement

Example. Interest received on December 20, 2013, that accrues by

(Form HUD-1) as points; for example, “loan origination fee”

December 31 but is not due until January 31, 2014, is reportable on

(including amounts for VA and FHA loans), “loan discount,”

the 2013 Form 1098.

“discount points,” or “points.”

Exception. Interest received during the current year that will

2. They are computed as a percentage of the stated principal

properly accrue in full by January 15 of the following year may be

loan amount.

considered received in the current year, at your option, and is

3. They are charged under an established business practice of

reportable on Form 1098 for the current year. However, if any part of

charging points in the area where the loan was issued and do not

an interest payment accrues after January 15, then only the amount

exceed the amount generally charged in that area.

that properly accrues by December 31 of the current year is

reportable on Form 1098 for the current year. For example, if you

4. They are paid for the acquisition of the payer of record's

receive a payment of interest that accrues for the period December

principal residence, and the loan is secured by that residence. You

20 through January 20, you cannot report any of the interest that

may rely on a signed written statement from the payer of record that

accrues after December 31 for the current year. You must report the

states that the proceeds of the loan are for the purchase of the payer

interest that accrues after December 31 on Form 1098 for the

of record's principal residence.

following year.

5. They are paid directly by the payer of record. Points are paid

directly if either a or b below applies.

Prepaid Mortgage Insurance

a. The payer of record provides funds that were not borrowed

Except for amounts paid to the Department of Veterans Affairs or the

from the lender of record for this purpose as part of the overall

Rural Housing Service, payments allocable to periods after 2007 are

transaction. The funds may include down payments, escrow

treated as paid in the periods to which they are allocable. Taxpayers

deposits, earnest money applied at closing, and other funds actually

should be referred to Publication 936 for allocation information.

paid over by the payer of record at or before closing.

b. The seller pays points on behalf of the payer of record. Points

Reimbursement of Overpaid Interest

paid by the seller to the interest recipient on behalf of the payer of

You are required to report reimbursements of overpaid interest

record are treated as paid to the payer of record and then paid

aggregating $600 or more to a payer of record on Form 1098. You

directly by the payer of record to the interest recipient.

are not required to report reimbursements of overpaid interest

Report points paid under 5a and 5b on the payer of record's

aggregating less than $600 unless you are otherwise required to file

Form 1098 in box 2.

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

Exceptions. Do not report as points on Form 1098 amounts paid:

merely to report a reimbursement of less than $600. However, you

For loans to improve a principal residence;

Instructions for Form 1098 (2013)

-3-

Instructions For Form 1098 - 2013 Page 3

Related Articles

Related forms

Related Categories