Instructions For Form 1098 - 2006 (Page 3 of 27) in pdf

2006

Department of the Treasury

Internal Revenue Service

Instructions for Form 1098

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

minimum living space of 400 square feet and a minimum width

Reminder

of more than 102 inches and which is of a kind customarily

In addition to these specific instructions, you should also use

used at a fixed location. See section 25(e)(10).

the 2006 General Instructions for Forms 1099, 1098, 5498, and

If property that secures the loan is not real property, you are

W-2G. Those general instructions include information about:

•

not required to file Form 1098. However, the borrower may be

Backup withholding

entitled to a deduction for qualified residence interest, such as

•

Magnetic media and electronic reporting requirements

•

may be the case for a boat, which has sleeping space and

Penalties

•

cooking and toilet facilities, that the borrower uses as a home.

Who must file (nominee/middleman)

•

Lines of credit and credit card obligations. Interest (other

When and where to file

•

than points) received on any mortgage that is in the form of a

Taxpayer identification numbers

•

line of credit or credit card obligation is reportable regardless of

Statements to recipients

•

how you classified the obligation. A borrower incurs a line of

Corrected and void returns

•

credit or credit card obligation when the borrower first has the

Other general topics

right to borrow against the line of credit or credit card, whether

You can get the general instructions from the IRS website at

or not the borrower actually borrows an amount at that time.

or by calling 1-800-TAX-FORM (1-800-829-3676).

Who Must File

File this form if you are engaged in a trade or business and, in

Specific Instructions for Form 1098

the course of such trade or business, you receive from an

Use Form 1098, Mortgage Interest Statement, to report

individual $600 or more of mortgage interest on any one

mortgage interest (including points, defined later) of $600 or

mortgage during the calendar year. You are not required to file

more received by you during the year in the course of your

this form if the interest is not received in the course of your

trade or business from an individual, including a sole proprietor.

trade or business. For example, you hold the mortgage on your

Report only interest on a mortgage defined below.

former personal residence. The buyer makes mortgage

payments to you. You are not required to file Form 1098.

The $600 threshold applies separately to each mortgage;

thus, file a separate Form 1098 for each mortgage. You may, at

For information about who must file to report points, see

your option, file Form 1098 to report mortgage interest of less

Points on page 1098-2.

than $600, but you are subject to the rules in these instructions.

Not in the lending business. If you receive $600 or more of

If an overpayment of interest on an adjustable rate mortgage

mortgage interest in the course of your trade or business, you

(ARM) or other mortgage was made in a prior year and you

are subject to the requirement to file Form 1098, even if you are

refund (or credit) such overpayment, you may have to file Form

not in the business of lending money. For example, if you are a

1098 to report the refund (or credit) of the overpayment. See

real estate developer and you provide financing to an individual

Reimbursement of Overpaid Interest on page 1098-3.

to buy a home in your subdivision, and that home is security for

the financing, you are subject to this reporting requirement.

Exceptions

However, if you are a physician not engaged in any other

You need not file Form 1098 for interest received from a

business and you lend money to an individual to buy your

corporation, partnership, trust, estate, association, or company

home, you are not subject to this reporting requirement

(other than a sole proprietor) even if an individual is a

because you did not receive the interest in the course of your

coborrower and all the trustees, beneficiaries, partners,

trade or business as a physician.

members, or shareholders of the payer of record are

Governmental unit. A governmental unit (or any subsidiary

individuals.

agency) receiving mortgage interest from an individual of $600

Mortgage Defined

or more must file this form.

A mortgage is any obligation secured by real property. Use the

Cooperative housing corporation. A cooperative housing

table below to determine which obligations are mortgages.

corporation is an interest recipient and must file Form 1098 to

Real property is land and generally anything built on it,

report an amount received from its tenant-stockholders that

growing on it, or attached to the land. Among other things, real

represents the tenant-stockholders’ proportionate share of

property includes a manufactured home or mobile home with a

interest described in section 216(a)(2). This rule applies only to

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.

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.

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.

Cat. No. 27977Q

Instructions For Form 1098 - 2006 Page 3

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