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Page 4 of 6 Fileid: … ions/I1098/2021/A/XML/Cycle04/source 12:51 - 8-Sep-2020
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
amounts for VA and FHA loans), “loan discount,” Construction loans. Amounts paid on a loan to
“discount points,” or “points.” construct a residence (construction loan) or to refinance a
2. They are computed as a percentage of the stated loan incurred to construct a residence are reportable on
principal loan amount. Form 1098 as points if they:
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
loan amount;
4. They are paid for the acquisition of the payer of
• Conform to an established business practice of
record's principal residence, and the loan is secured by
charging points in the area where the loan is issued and
that residence. You may rely on a signed written
do not exceed the amount generally charged in the area;
statement from the payer of record that states that the
• Are paid in connection with a loan incurred by the payer
proceeds of the loan are for the purchase of the payer of
of record to construct (or refinance construction of) a
record's principal residence.
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, 2021,
of record's Form 1098 in box 6. that accrues by December 31, 2021, but is not due until
January 31, 2022, is reportable on the 2021 Form 1098.
Exceptions. Do not report as points on Form 1098 Exception. Interest received during the current year that
amounts paid: will properly accrue in full by January 15 of the following
• For loans to improve a principal residence; year may be considered received in the current year, at
• For loans to purchase or improve a residence that is not your option, and is reportable on Form 1098 for the
the payer of record's principal residence, such as a current year. However, if any part of an interest payment
second home, vacation, investment, or trade or business accrues after January 15, then only the amount that
property, even though the borrower may be entitled to properly accrues by December 31 of the current year is
amortize points paid for the purchase of a second home, reportable on Form 1098 for the current year. For
vacation home, etc., and deduct them over the life of the example, if you receive a payment of interest that accrues
loan; for the period December 20 through January 20, you
• For a home equity or line of credit loan, even if secured cannot report any of the interest that accrues after
by the principal residence; December 31 for the current year. You must report the
• For refinancing (see Construction loans, later), interest that accrues after December 31 on Form 1098 for
including a loan to refinance a debt owed by the borrower the following year.
under a land contract, a contract for deed, or similar forms
of seller financing; Prepaid Mortgage Insurance
• In lieu of items ordinarily stated separately on the Form Except for amounts paid to the Department of Veterans
HUD-1, such as appraisal fees, inspection fees, title fees, Affairs or the Rural Housing Service, payments allocable
attorney fees, and property taxes; and to periods after 2007 are treated as paid in the periods to
• To acquire a principal residence to the extent the points which they are allocable.
are allocable to an amount of principal in excess of the
amount treated as acquisition indebtedness. Generally, The Treasury Department has issued regulations for
the amount treated as acquisition indebtedness cannot allocating prepaid qualified mortgage insurance
exceed $750,000, but it may be up to $1 million if the premiums. Regulations section 1.163-11 applies to
borrower entered into a written binding contract before prepaid qualified mortgage insurance premiums paid or
December 15, 2017, to close on the purchase before accrued on or after January 1, 2011, provided by the
January 1, 2018, and purchased the residence before Federal Housing Administration or private mortgage
April 1, 2018 (the "written binding contract exception"). If insurers. For regulations applicable before January 1,
you know that the written binding contract exception 2011, see Regulations section 1.163-11T.
applies, report points that are allocable to an amount of
principal up to $1 million.
-4- Instructions for Form 1098 (2021)
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