Updated October 17, 2026. Quick answer: Box 2 of Form 1098 shows the outstanding principal on the mortgage as of January 1 of the year. If the loan started or was bought by the lender during the year, it shows the principal on that date instead. Pub. 936 sets debt limits for the home mortgage interest deduction, and it measures them with balances you work out, not with a box number.
More IRS forms and schedules for individual filers, read line by line: Form 8396 instructions.
Related reading on this site: IRS Publication 936.
IRS worksheets read line by line: Home Mortgage Interest Limit Worksheet.
Schedule A and Schedule B (Form 1040) for 2025, read line by line: Schedule A lines 5b and 5c, Schedule A line 8a and Schedule A lines 8b, 8c and 8e.
What box 2 reports
The form describes it in one sentence: “Shows the outstanding principal on the mortgage as of January 1 of the calendar year.” The line is labelled “Outstanding mortgage principal”. The lender instruction asks for the same item: “Enter the amount of outstanding principal on the mortgage as of January 1, of the current year.”
This is a principal figure. The interest for the year is a separate item in box 1, covered on the box 1 page, and all of the boxes are listed in the Form 1098 boxes guide. The overall form is described in the Form 1098 overview.
Three versions of the same box
The date attached to the principal depends on when the loan started or changed hands. The form and the lender instructions cover all three cases.
| Situation | What box 2 shows |
|---|---|
| The mortgage existed before January 1 of the year | “Shows the outstanding principal on the mortgage as of January 1 of the calendar year.” |
| The mortgage originated during the year | “If the mortgage originated in the calendar year, shows the mortgage principal as of the date of origination.” |
| The lender acquired the loan during the year | “If the recipient/lender acquired the loan in the calendar year, shows the mortgage principal as of the date of acquisition.” |
The lender instruction says the same about the second and third cases: “If you originated the mortgage in the current year, enter the mortgage principal as of the date of origination.” “If you acquired the mortgage in the current year, enter the outstanding mortgage principal as of the date of acquisition.”
As an illustration, not an IRS example, and with no dollar amount: a loan that closed in March shows the principal on the closing date in box 2, not a January 1 figure, because there was no mortgage on January 1. A loan that was already open on January 1 shows the principal on that day, even if the payments during the year brought the balance down. The dates for those events are in boxes 3 and 11, which are explained on the box 3 and box 11 page.
What Pub. 936 says about debt limits
The box 2 amount is not itself a limit or a deduction. The place where debt limits are set is Pub. 936. It begins with the type of debt: “Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home).” The limit then depends on when the debt was secured: “For debt secured after October 13, 1987, and prior to December 16, 2017, the limit is $1 million ($500,000 if married filing separately).” “For debt secured after December 15, 2017, the limit is $750,000 ($375,000 if married filing separately).”
The form puts the same worry on the borrower in its own words: “Limits based on the loan amount and the cost and value of the secured property may apply.” Those are the limits the publication works out, and they are not decided by the figure in box 2.
How the publication measures the balance
To test the limit, the publication asks for an average balance of each mortgage, not a single snapshot: “You have to figure the average balance of each mortgage to determine your qualified loan limit.” It also lets you use a simpler number: “You can use the highest mortgage balances during the year, but you may benefit most by using the average balances.”
One of the methods starts from the same date that box 2 uses. The first worksheet line reads: “Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year (generally, January 1)”. That is one input to one method, and it requires a second balance from the last day of the year. Another route comes from the lender: “If your lender can give you your average balance for the year, you can use that amount.” The publication’s text does not name box 2 as the source for any of these worksheets, so the box is best read as one data point to check against your own loan statements.
Using box 2 in practice
Compare box 2 with your January loan statement or your closing documents. If a mortgage was refinanced, the publication says the refinanced portion is tied to the old debt: “Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt.” The publication adds: “the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing.”
For the return itself, the deduction for interest reported on Form 1098 is entered on Schedule A, described on the Schedule A page. The state and local tax line on the same schedule is on the 2027 SALT cap page.
Edition and box numbers
The primary read for this page is Form 1098 (Rev. April 2025), Copy B, with its Instructions for Payer/Borrower, together with the Instructions for Form 1098 (Rev. April 2025) that speak to the lender. irs.gov was serving a newer set of instructions, the December 2026 revision, on 2026-10-17. Those instructions describe how the form is used going forward: “Use the April 2025 revision of Form 1098 and these instructions to file 2026 information with the IRS in early 2027.” In other words, the form itself was still the April 2025 revision on that date, and the form text served that day read the same as the April 2025 text when the two were compared line by line.
Box 2 is box 2 on both revisions of the instructions, and the box 2 wording is the same in the April 2025 and December 2026 instructions. Pub. 936 for 2025 returns is the publication read here, so the debt limits quoted above are the ones it states for 2025 returns. Check the tax year printed on the Form 1098 you received, and check whether the corrected box is marked, before relying on any number.
Common mistakes
- Reading box 2 as the end of year balance. The form says it is the principal “as of January 1 of the calendar year”, or the origination or acquisition date for a new loan.
- Assuming the Form 1098 box is the figure to test the debt limit. Pub. 936 says “You have to figure the average balance of each mortgage to determine your qualified loan limit.”
- Applying one limit to every loan. The publication splits them by date: “For debt secured after December 15, 2017, the limit is $750,000”.
Related: Form 1098 overview, Schedule A (Form 1040), the 2027 SALT cap, and insurance after the mortgage is paid off.
Sources
- Form 1098 (Rev. 4-2025) with Instructions for Payer/Borrower: IRS archived PDF (irs.gov)
- Instructions for Form 1098 (Rev. April 2025): IRS archived PDF (irs.gov)
- Instructions for Form 1098 (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1098.pdf
- Publication 936, Home Mortgage Interest Deduction (for 2025 returns): https://www.irs.gov/pub/irs-pdf/p936.pdf
Read from the IRS documents linked above on October 17, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.