Mortgage Interest Received From Payer/Borrower: Filing Form 1098

If you received $600 or more in mortgage interest from a borrower in the course of a trade or business during the calendar year, you must file Form 1098 with the IRS and send a copy to the borrower, and then report that interest as ordinary income on your own tax return. Reporting mortgage interest received on Form 1098 applies to more people than just banks: private individuals who seller-finance a property sale are typically covered too. The work breaks into four pieces: confirming you have to file, collecting the borrower’s tax ID, completing and sending the form on time, and reporting the income on your own return.

Whether You Have To File

Two conditions trigger the Form 1098 requirement. You received $600 or more in mortgage interest from an individual borrower during the calendar year, and you received it in the course of a trade or business.1Internal Revenue Service. Instructions for Form 1098 (Rev. December 2026) A “mortgage” here means any debt secured by real property, so home loans, home equity lines of credit, and seller-financed notes all count.2Internal Revenue Service. Instructions for Form 1098 (12/2026) – Section: Box 1. Mortgage Interest Received From Payer(s)/Borrower(s)

The “trade or business” piece is where private lenders get confused. You don’t need to be a bank or a licensed lender. If you sold property and financed the buyer, or if you regularly make loans, the IRS treats that activity as a trade or business, and a one-time seller-financed sale typically qualifies. The test is whether the activity has enough continuity and regularity to look like a commercial endeavor rather than a purely personal transaction.

If you lent money purely as a personal favor with no business character, you aren’t required to file Form 1098. You still owe tax on every dollar of interest you received and must report it on your own return.

Borrowers Who Don’t Trigger a 1098

You do not file Form 1098 for interest received from corporations, partnerships, trusts, estates, or associations, even if an individual co-signed the loan or all the entity’s members are individuals.1Internal Revenue Service. Instructions for Form 1098 (Rev. December 2026) Interest from a non-resident alien borrower is also generally outside the Form 1098 regime, though a different reporting track applies (see the last section).

Get the Borrower’s Tax ID Before Anything Else

You need the borrower’s correct name, address, and Taxpayer Identification Number to complete Form 1098. The standard way to collect this is to have the borrower complete a Form W-9 at loan origination or shortly after.3Internal Revenue Service. Instructions for the Requester of Form W-9 Don’t put this off. If the borrower refuses to provide a TIN or supplies an incorrect one, you can’t file a complete Form 1098 and you may have to begin backup withholding on the interest payments.

Backup withholding for 2026 is 24% of the payment amount.4Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide So if a borrower owes you $1,000 in interest and hasn’t provided a valid TIN, you’d withhold $240 and send it to the IRS. A W-9 marked “Applied For” in the TIN field gives you a 60-day window before backup withholding kicks in.3Internal Revenue Service. Instructions for the Requester of Form W-9 Get the W-9 signed at closing, not months later when the borrower has less incentive to cooperate.

Completing Form 1098

The form asks for your name, address, and TIN (an EIN or SSN) along with the borrower’s corresponding details, plus specific figures in the numbered boxes.

Box 5 handles mortgage insurance premiums of $600 or more, but only when the mortgage insurance premium deduction is actually in effect for the reporting year. That deduction has expired and been reinstated multiple times, so confirm it applies before completing the box.10Internal Revenue Service. Instructions for Form 1098 (12/2026) – Section: Box 5. Mortgage Insurance Premiums

If You Refunded Overpaid Interest

Refunds or credits of interest overpaid in a prior year go in Box 4, with the total refund amount entered even if it covers overpayments spanning multiple prior years.11Internal Revenue Service. Instructions for Form 1098 (Rev. December 2026) – Section: Box 4. Refund of Overpaid Interest Report the refund on the Form 1098 for the year you made it. Don’t amend a prior year’s form. If you credited the overpayment against the current interest balance instead of cutting a check, the credited amount still goes in Box 4, and Box 1 reflects the full interest amount including the credit.

One exception: if the overpayment and the refund both happen in the same calendar year, skip Box 4 and just reduce the Box 1 interest figure by the refund amount.11Internal Revenue Service. Instructions for Form 1098 (Rev. December 2026) – Section: Box 4. Refund of Overpaid Interest

Deadlines and How You Send It

Two deadlines apply. You must furnish Copy B to the borrower by January 31 of the year after the interest was paid.1Internal Revenue Service. Instructions for Form 1098 (Rev. December 2026) You must file Copy A with the IRS by February 28 if you file on paper, or March 31 if you file electronically.12Internal Revenue Service. Annual Summary and Transmittal of U.S. Information Returns

Electronic filing becomes mandatory if you file 10 or more information returns of any type during the year, counting Forms 1098, 1099, W-2, and similar returns together.13Internal Revenue Service. E-file information returns Most private lenders handling a single seller-financed note fall well below that threshold and can file on paper.

Paper filers send Copy A with Form 1096 as the cover sheet. Enter your name, address, TIN, and the total number of Forms 1098 you’re transmitting. Box 5 on Form 1096 should equal the combined totals from Box 1 and Box 6 across all your Forms 1098. Sign and date under the perjury statement.12Internal Revenue Service. Annual Summary and Transmittal of U.S. Information Returns

Fixing Mistakes

If you find an error after filing, whether a wrong TIN, an incorrect interest amount, or a missing property address, file a corrected Form 1098 as soon as possible. Check the “CORRECTED” box near the top and send it to both the IRS and the borrower.14Internal Revenue Service. Form 1098 Mortgage Interest Statement Speed matters: a return corrected within 30 days of the original due date carries a $60 penalty rather than the $340 you’d owe if you never corrected it.15Internal Revenue Service. Information return penalties

Penalties If You File Late or Wrong

The IRS imposes tiered penalties under Section 6721 for filing incorrect information returns and Section 6722 for furnishing incorrect statements to borrowers. For returns due in 2026:15Internal Revenue Service. Information return penalties

  • Corrected within 30 days of the due date: $60 per return.
  • Corrected after 30 days but by August 1: $130 per return.
  • Filed after August 1 or not filed at all: $340 per return.
  • Intentional disregard: $680 per return, or a percentage of the amount that should have been reported (whichever is greater), with no annual cap.16Office of the Law Revision Counsel. 26 USC 6721 – Failure to File Correct Information Returns

A private lender filing a single Form 1098 months late still faces the $340 penalty, and the intentional-disregard tier has no cap at all, so ignoring the requirement isn’t a workable strategy.

Reporting the Interest on Your Own Return

Filing Form 1098 with the IRS is one obligation. Reporting the interest as income on your own return is a separate one. Every dollar of mortgage interest you received is ordinary income for federal tax purposes. Where you report it depends on the nature of your lending activity.

Schedule B for Personal Investment Lending

If you lent money as a personal investment rather than as a business, such as a one-time private mortgage to a friend or family member, report the interest on Schedule B (Form 1040).17Internal Revenue Service. About Schedule B (Form 1040), Interest and Ordinary Dividends Schedule B specifically requires seller-financed mortgage interest, where the buyer used the property as a personal residence, to be listed first, along with the buyer’s name, address, and Social Security number.18Internal Revenue Service. Schedule B (Form 1040) 2025 – Interest and Ordinary Dividends Under the cash method that most individuals use, you report the interest in the year you received it.

Schedule C for Lending as a Trade or Business

If lending is your trade or business (you make multiple loans, advertise your services, or operate as a private money lender) the interest goes on Schedule C. You can deduct legitimate business expenses against the income, such as loan servicing software, office costs, and professional fees. The tradeoff is that net Schedule C income is subject to self-employment tax on top of regular income tax.

Schedule E for Seller-Financed Rental Property

If you sold a rental property with seller financing and continue receiving interest payments, Schedule E is the appropriate place, alongside any remaining rental activity from the property.

Whichever schedule applies, the total interest you report on your own return should match the total across all Forms 1098 you issued. A mismatch reliably triggers IRS correspondence.

Extra Pieces for Seller-Financed Sales

Seller financing creates reporting obligations beyond Form 1098. When you report seller-financed mortgage interest on Schedule B, you must disclose the buyer’s name, address, and TIN, and you must provide your own TIN to the buyer so they can claim their interest deduction. Failing either can trigger a $50 penalty.19Internal Revenue Service. Instructions for Schedule B (Form 1040)

You also need to think about the gain on the sale itself. The interest portion of each payment is income on the applicable schedule, but the principal portion may represent installment sale gain reportable on Form 6252 (Installment Sale Income). Form 6252 explicitly excludes interest and handles only the gain component.20Internal Revenue Service. Installment Sale Income Blended monthly payments therefore split across two different reporting mechanisms each year.

If Your Borrower Is a Non-Resident Alien

Form 1098 generally doesn’t apply to interest received from non-resident aliens, but you aren’t off the hook. Interest paid to a non-resident alien may need to be reported on Forms 1042 and 1042-S, and you may be required to withhold federal income tax depending on the type of interest and whether a tax treaty applies.21Internal Revenue Service. Federal Income Tax Withholding and Reporting on Other Kinds of U.S. Source Income Paid to Nonresident Aliens

The borrower should provide a Form W-8BEN (rather than a W-9) to establish foreign status and claim any treaty benefits. Even when the entire payment is exempt under a treaty, you still report it on Form 1042-S.21Internal Revenue Service. Federal Income Tax Withholding and Reporting on Other Kinds of U.S. Source Income Paid to Nonresident Aliens Withholding rules in this area are complex enough that a private lender who discovers a borrower is a non-resident alien should get professional tax advice before filing.