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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
3. They are charged under an established business • Are clearly designated on the loan documents as points
practice of charging points in the area where the loan was incurred in connection with the loan, such as loan
issued and do not exceed the amount generally charged origination fees, loan discount, discount points, or points;
in that area. • Are computed as a percentage of the stated principal
4. They are paid for the acquisition of the payer of loan amount;
record's principal residence, and the loan is secured by • Conform to an established business practice of
that residence. You may rely on a signed written charging points in the area where the loan is issued and
statement from the payer of record that states that the do not exceed the amount generally charged in the area;
proceeds of the loan are for the purchase of the payer of • Are paid in connection with a loan incurred by the payer
record's principal residence. of record to construct (or refinance construction of) a
residence that is to be used, when completed, as the
5. They are paid directly by the payer of record. Points principal residence of the payer of record;
are paid directly if either (a) or (b) below applies. Are paid directly by the payer of record; and
•
a. The payer of record provides funds that were not • Are not allocable to an amount of principal in excess of
borrowed from the lender of record for this purpose as $750,000, or $1 million if you know that the written binding
part of the overall transaction. The funds may include contract exception applies.
down payments, escrow deposits, earnest money applied Amounts paid to refinance a loan to construct a
at closing, and other funds actually paid over by the payer residence are not points to the extent they are allocable to
of record at or before closing. debt that exceeds the debt incurred to construct the
b. The seller pays points on behalf of the payer of residence.
record. Points paid by the seller to the interest recipient on
behalf of the payer of record are treated as paid to the Prepaid Interest
payer of record and then paid directly by the payer of Report prepaid interest (other than points) only in the year
record to the interest recipient. in which it properly accrues.
Report points paid under items 5a and 5b on the payer Example. Interest received on December 20, of the
of record's Form 1098 in box 6. current year, that accrues by December 31, of the current
year, but is not due until January 31, of the following year,
Exceptions. Do not report as points on Form 1098 is reportable on the current year Form 1098.
amounts paid:
Exception. Interest received during the current year that
• For loans to improve a principal residence;
will properly accrue in full by January 15 of the following
• For loans to purchase or improve a residence that is not
year may be considered received in the current year, at
the payer of record's principal residence, such as a
your option, and is reportable on Form 1098 for the
second home, vacation, investment, or trade or business
current year. However, if any part of an interest payment
property, even though the borrower may be entitled to
accrues after January 15, then only the amount that
amortize points paid for the purchase of a second home,
properly accrues by December 31 of the current year is
vacation home, etc., and deduct them over the life of the
reportable on Form 1098 for the current year. For
loan;
example, if you receive a payment of interest that accrues
• For a home equity or line of credit loan, even if secured
for the period December 20 through January 20, you
by the principal residence;
cannot report any of the interest that accrues after
• For refinancing (see Construction loans, later),
December 31 for the current year. You must report the
including a loan to refinance a debt owed by the borrower
interest that accrues after December 31 on Form 1098 for
under a land contract, a contract for deed, or similar forms
the following year.
of seller financing;
• In lieu of items ordinarily stated separately on the Form Prepaid Mortgage Insurance
HUD-1, such as appraisal fees, inspection fees, title fees,
attorney fees, and property taxes; and Except for amounts paid to the Department of Veterans
• To acquire a principal residence to the extent the points Affairs or the Rural Housing Service, payments allocable
are allocable to an amount of principal in excess of the to periods after 2007 are treated as paid in the periods to
amount treated as acquisition indebtedness. Generally, which they are allocable.
the amount treated as acquisition indebtedness cannot The Treasury Department has issued regulations for
exceed $750,000, but it may be up to $1 million if the allocating prepaid qualified mortgage insurance
borrower entered into a written binding contract before premiums. Regulations section 1.163-11 applies to
December 15, 2017, to close on the purchase before prepaid qualified mortgage insurance premiums paid or
January 1, 2018, and purchased the residence before accrued on or after January 1, 2011, provided by the
April 1, 2018 (the "written binding contract exception"). If Federal Housing Administration or private mortgage
you know that the written binding contract exception insurers. For regulations applicable before January 1,
applies, report points that are allocable to an amount of 2011, see Regulations section 1.163-11T.
principal up to $1 million.
Construction loans. Amounts paid on a loan to Reimbursement of Overpaid Interest
construct a residence (construction loan) or to refinance a You are required to report reimbursements of overpaid
loan incurred to construct a residence are reportable on interest aggregating $600 or more to a payer of record on
Form 1098 as points if they: Form 1098. You are not required to report
reimbursements of overpaid interest aggregating less
than $600 unless you are otherwise required to file Form
-4- Instructions for Form 1098 (Rev. 01-2022)
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