At the end of the year, lenders who receive loan interest must issue IRS Form 1098, Mortgage Interest Statement. It reports interest received from mortgages and must be sent to both borrowers and the IRS.
The process of issuing this tax form is labor intensive and requires a significant investment in staff and technology. The following steps can be taken to avoid penalties and ensure that the right parties receive the information they need.
Determine Which Borrowers Should Receive A 1098 Tax Form
Companies that do not use a third-party servicer are responsible for classifying borrowers and determining which should receive a 1098 tax form. The IRS provides guidance to help with this process and states that the following types of borrowers should receive a form:
- Borrowers with a Social Security Number.
- Mortgages incurred after 1987 that are secured all or in part by real property.
- Loans for which more than $600 in interest was collected during the year – including certain types of points.
Send 1098 Tax Forms on Time
Form 1098 must be sent to the appropriate borrowers by January 31st and a copy is to be filed electronically with the IRS by March 31st. Issuers must meet these deadlines to avoid a penalty from the IRS.
In 2025, the penalty for a tax form filed up to 30 days after the due date is $60. If the form is filed more than 30 days late but before August 1st, the penalty is $130. Forms filed after August 1st are subject to a $330 penalty or a $660 penalty if the entity issuing it is found to have intentionally disregarded the requirement.
The IRS penalties apply to each form not filed with the IRS and each payee statement that is not furnished before the due date. Therefore, companies with hundreds or thousands of borrowers can quickly accumulate a substantial penalty if their forms are not issued on time.
E-delivery can be an excellent option when systems allow for this method. By allowing borrowers to receive their forms electronically, lenders can save time and money spent sending forms via the postal service while ensuring prompt delivery for customers.
Create A Record Retention Program
Guidance from the IRS shows that firms should retain supporting documentation or be able to reconstruct tax form data for a period of 3 years from the reporting date. Issuers must have a plan in place to store the appropriate records for this length of time while protecting sensitive client data.
Since 2023, companies who issue more than 10 tax forms in a calendar year must use the Filing Information Returns Electronically program – better known as the FIRE system – to submit copies of these forms to the IRS. The IRS also recommends retaining a copy of file status emails from the FIRE system for a period of three years.
Prepare to Answer Borrower Questions About 1098 Tax Forms
To comply with form submission requirements, lenders should be prepared for the time it takes to ensure tax forms are accurate, sent to the correct borrowers, and delivered on time. However, many lenders don’t consider that they will also need to spend a significant amount of time answering borrower questions about those forms.
To prepare for 1098 tax form questions, companies can post a Frequently Asked Questions document on their website. This document should address common concerns like the timing of tax forms and methods for delivery. An effective FAQ can reduce the number of questions that customer service staff need to field.
In addition to customer-facing documentation, robust internal documentation can help staff handle the influx of borrower questions. These resources enable consistent customer service experiences and reduce the number of repeat calls by allowing staff to answer questions fully and accurately – the first time.
Between issuing accurate tax forms and answering borrower questions, lenders typically expend substantial time and effort at the end of the year on tasks that do not help their bottom line. Fortunately, those who partner with an experienced loan servicer to handle these tasks can avoid the added work and focus on growing their loan portfolio.
Partner With AmeriNat to Reduce Your Workload
At AmeriNat, issuing 1098 tax forms is just one of the many tasks we handle for our partners. Our team determines which borrowers should receive these tax forms, sends them well before the IRS deadline, retains the required documentation, and answers borrower questions with professionalism and personalized care.
We have been providing high-quality loan servicing since 1975. Our vast experience has led us to be trusted by lenders across the nation to service more than 50,000 loans with a principal balance of over $11 billion.
With our experience and proven processes, your company can rest assured that borrowers’ needs are handled. Then, you are free to focus on driving new business and strengthening your loan portfolio.
To learn more about loan servicing with AmeriNat, contact us today.
