What Is Form 8396: Mortgage Interest Credit?
– Form 8396 (Mortgage Interest Credit) is an IRS tax form used by eligible homeowners to claim the mortgage interest credit. The credit is designed to help lower- and moderate‑income homebuyers afford homeownership by allowing a portion of mortgage interest paid to be claimed directly against federal income tax. You can only claim the credit if you were issued a Mortgage Credit Certificate (MCC) by a state or local government agency (a qualified mortgage credit certificate program) (IRS; Investopedia).
Who Can File Form 8396?
– Any taxpayer who was issued an MCC for a home they purchased may file Form 8396 to claim the mortgage interest credit. MCCs are generally issued only for purchases of a primary residence and usually target lower‑ and moderate‑income buyers. If you were issued an MCC, you may claim the credit in each year you remain eligible (Investopedia; IRS).
How to File Form 8396 — Step‑by‑Step
1. Confirm you have an MCC
– You must have been issued a Mortgage Credit Certificate by a state or local agency. If you did not receive an MCC, you cannot claim the credit (Investopedia).
2. Gather documents
– Your MCC (shows certificate rate used to compute the credit).
– Form 1098 (Mortgage Interest Statement) from your lender (shows mortgage interest paid).
– Last year’s Form 8396 if you carried forward unused credit.
– Your federal tax return (Form 1040, 1040‑SR, or 1040‑NR).
3. Get Form 8396
– Download from the IRS website: About Form 8396 (irs.gov/forms-pubs/about-form-8396).
4. Complete Part I — Compute current year credit
– Use the MCC rate and the amount of qualified mortgage interest to compute the credit. The IRS limits the mortgage interest credit to a maximum of $2,000 per year (IRS; Investopedia).
– Example: If your MCC rate is 20% and you paid $12,000 in qualified mortgage interest, the raw credit is $2,400. The IRS cap reduces the credit to $2,000 for the year.
5. Complete Part II — Carryforward computation (if applicable)
– If you cannot use the entire credit because your tax liability is smaller than the credit, Form 8396 helps compute any credit amount you can carry forward to the next year.
– Keep a copy of this year’s completed Form 8396 to compute future carryforwards.
6. Attach and file
– Attach completed Form 8396 to your Form 1040 (or 1040‑SR / 1040‑NR) when you file your return.
7. Recordkeeping
– Keep copies of the MCC, Form 1098, all Forms 8396, and your tax returns.
Important
– Credit limit: The mortgage interest credit is capped at $2,000 per year.
– Itemized deduction interaction: If you itemize deductions on Schedule A, you must reduce the mortgage interest amount you report as an itemized deduction by the amount of mortgage interest credit claimed on Form 8396 (Investopedia).
– Attach Form 8396 to your tax return each year you claim the credit.
Special Considerations When Filing Form 8396
– Program rules vary: MCC programs are administered by state and local agencies. Income limits, purchase price limits, and other eligibility rules vary by program. Always check the rules with the issuing agency.
– Refinances: If you refinance your mortgage, a new MCC is generally issued and you may continue to claim the credit if you remain eligible. Confirm with your MCC issuer (Investopedia).
– Sale within nine years: Some MCC programs and tax rules can require partial repayment (recapture) if the home is sold within a specified period (Investopedia notes homeowners who sell within nine years may have to repay some of the credit). Check program rules and consult a tax advisor for specifics.
– Carryforward: If your credit exceeds your tax liability, you may be able to carry the unused portion forward to future years. Use Part II of Form 8396 to determine carryforward amounts and retain records.
Form 8396 vs. Form 1098
– Form 1098 (Mortgage Interest Statement) is sent by your mortgage lender or servicer and reports the amount of mortgage interest and related expenses you paid during the year (IRS).
– The mortgage interest amount reported on your MCC is usually the same as Box 1 of Form 1098, and that figure is used to compute the mortgage interest credit on Form 8396.
– Key difference: Form 1098 reports interest paid (for deductions and recordkeeping). Form 8396 is the taxpayer’s form to compute and claim the mortgage interest credit (Investopedia; IRS).
Frequently Asked Questions
– Can I claim the mortgage interest credit if I didn’t receive an MCC?
– No. You must have a Mortgage Credit Certificate issued by a state or local agency to claim the credit (Investopedia).
– Can I claim the mortgage interest credit if I refinance my mortgage?
– Often yes, but refinancing may require issuance of a new MCC. Confirm with the issuing agency and check the rules for continuing eligibility (Investopedia).
– Do I need to file Form 8396 every year?
– Yes — if you want to claim the credit and you continue to meet eligibility requirements, you must file Form 8396 annually and attach it to your tax return (Investopedia).
Practical Tips
– Keep an organized file: retain your MCC, annual Form 8396, Form 1098, and tax returns. The MCC issuer or the IRS may request documentation.
– Check local program rules when you receive an MCC: limits on income, purchase price, and recapture provisions vary by state and local programs.
– If you itemize on Schedule A: remember to reduce your mortgage interest deduction by the amount of the credit you claim.
– If you’re unsure about recapture or carryforward calculations, consult a tax professional familiar with MCC programs.
The Bottom Line
Form 8396 lets eligible lower‑ and moderate‑income homeowners who were issued a mortgage credit certificate claim a mortgage interest credit (up to $2,000/year) to reduce their federal income tax. To claim the credit you must have an MCC, complete Parts I and II of Form 8396, attach it to your Form 1040, and comply with program and IRS rules (Investopedia; IRS). Because program rules and potential recapture issues vary by jurisdiction, confirm specifics with the issuing agency or a tax advisor.
Sources
– Investopedia. “Form 8396: Mortgage Interest Credit.” https://www.investopedia.com/terms/f/form-8396.asp
– Internal Revenue Service. About Form 8396, Mortgage Interest Credit. https://www.irs.gov/forms-pubs/about-form-8396
– Internal Revenue Service. Publication 530, Tax Information for Homeowners. https://www.irs.gov/publications/p530
– Internal Revenue Service. About Form 1098, Mortgage Interest Statement. https://www.irs.gov/forms-pubs/about-form-1098
(Continued)
Additional sections, examples, and a concluding summary
Documentation to Keep and When to Get Help
– Keep the original Mortgage Credit Certificate (MCC) and a copy of each year’s Form 8396. The MCC shows the credit rate and the mortgage interest amount used to compute the credit.
– Keep your Form 1098 (Mortgage Interest Statement) from your lender, settlement statements (HUD-1 or Closing Disclosure), and year-end mortgage statements. These documents support the interest amounts used on Form 8396 and Schedule A.
– Keep records if you refinance, sell, or otherwise change your loan or ownership status (new mortgage documents, new MCC, sale paperwork).
– If you have a complicated situation (partial-year residency, co-ownership with changing shares, early sale and potential repayment/recapture, or state-level differences in MCC programs), consult a tax professional or the agency that issued your MCC.
More on Special Considerations
– Primary residence requirement. MCCs typically are issued only for a borrower’s primary residence. Vacation homes and investment properties are generally not eligible for MCCs.
– Income and purchase limits. MCC programs are administered at the state or local level and usually have income and purchase-price limits. If you were near program limits when you received the MCC, double-check your eligibility each year if your circumstances change.
– Ownership changes and co-borrowers. If ownership or borrower shares change, the credit calculation and division among taxpayers may change. Only the person who paid the mortgage interest and is eligible under the MCC may claim the credit.
– State program rules. The MCC itself is issued by a state or local agency — that agency sets program rules (e.g., whether a new MCC is issued on refinance, transferability rules). Contact the issuing agency for program-specific questions.
Examples
Example 1 — Basic credit calculation
– Facts: You paid $8,000 of mortgage interest this year. Your MCC shows a credit rate of 20%.
– Calculation: 20% of $8,000 = $1,600. Since the IRS limit (per the information above) is $2,000, your credit is $1,600.
– Tax reporting: Enter $1,600 on Form 8396, carry any necessary amount to Part II for future years if unused, then attach Form 8396 to your Form 1040.
Example 2 — Credit hits the IRS cap
– Facts: You paid $12,000 of mortgage interest. MCC rate = 20%.
– Calculation: 20% of $12,000 = $2,400, but the IRS caps the mortgage interest credit at $2,000 per year.
– Result: Your allowable credit is $2,000.
Example 3 — Credit > tax liability; carryforward
– Facts: Your allowable mortgage interest credit for the year is $2,000 but your federal income tax liability before credits is $1,200.
– Result: You can apply $1,200 of the credit in the current year and carry the remaining $800 forward. Use Part II of Form 8396 to compute and track that carryforward for the next year. (Check Form 8396 instructions or IRS guidance for how far forward you may carry unused credit and any limitations.)
Example 4 — Interaction with itemized mortgage interest deduction
– Facts: You itemize. Mortgage interest you paid and reported on Schedule A equals $8,000. You qualify for a $1,600 mortgage interest credit computed on Form 8396.
– Adjustment: If you claim the credit, you must reduce the mortgage interest amount you itemize by the credit you claimed. So for Schedule A, you would report mortgage interest of $6,400 ($8,000 − $1,600).
– Why: This prevents taxpayers from receiving both a dollar-for-dollar credit and the full deduction for the same interest expense.
Practical Filing Steps (concise checklist)
1. Confirm you received an MCC from a state or local issuing agency and it is valid for the tax year.
2. Gather documentation: MCC form, Form 1098, mortgage statements, closing disclosure/settlement statement.
3. Fill in Part I of Form 8396 to compute the current-year mortgage interest credit (use the MCC rate, and remember the annual $2,000 limit noted above).
4. If you cannot use the entire credit because it exceeds your tax liability for the year, use Part II to calculate any carryforward to the next year.
5. If you itemize, reduce the mortgage interest amount on Schedule A by the amount of credit you claim.
6. Attach Form 8396 to your Form 1040 (or 1040-SR or 1040-NR) when you file.
7. Keep a copy of Form 8396 and supporting documents for your records and for next-year carryforward calculations.
When a Refinance Occurs
– Many MCC programs issue a new certificate on refinance — that allows you to continue claiming the mortgage interest credit after refinancing, subject to program rules and IRS requirements. Contact the agency that issued your original MCC to learn how your refinance will affect the MCC and whether you must apply for a new certificate.
– If you refinance and qualify for a new MCC, continue to file Form 8396 each year as long as you meet all program and IRS requirements.
Sale of Home and Possible Recapture
– Some MCC programs include recapture or repayment provisions if you sell or otherwise transfer the home within a certain period (for example, within the first nine years after issuance). The state or local agency that issued the MCC will advise whether any repayment is required and how it is calculated. Keep sale and settlement documents in case recapture questions arise.
Form 8396 vs. Form 1098 — quick clarification
– Form 8396: File this IRS form to claim the mortgage interest credit when you have an MCC. It calculates the credit and any carryforward.
– Form 1098: Issued by your lender, this statement reports mortgage interest and points paid during the tax year (Box 1 and other boxes). The interest amount used on your MCC is usually the same as the interest shown on Form 1098, and you’ll use Form 1098 to substantiate the interest amounts you report on Form 8396 and Schedule A.
Common Questions (recap)
– Can I claim the mortgage interest credit if I didn’t receive an MCC? No. You must have been issued a Mortgage Credit Certificate by a qualified state or local government agency to claim the credit.
– Can I claim the credit if I refinance? Often yes — many programs issue a new MCC on refinance. Check with the issuing agency and follow Form 8396 instructions.
– Do I need to file Form 8396 every year? Yes — if you continue to qualify and want to claim the mortgage interest credit each year, fill out and attach Form 8396 to your tax return annually. Keep records of carryforwards for future filings.
Where to find the forms and official guidance
– Form 8396 and its instructions are available on the IRS website. See “About Form 8396, Mortgage Interest Credit.”
– For more homeowner tax information, see IRS Publication 530, Tax Information for Homeowners.
– For mortgage interest reporting from lenders, see IRS resources on Form 1098, Mortgage Interest Statement.
– For program-specific rules, contact the state or local agency that issued your MCC.
Concluding summary
Form 8396 provides eligible lower- and moderate-income homeowners an annual way to claim part of their mortgage interest as a tax credit — but only if they have been issued an MCC by a state or local government agency. The credit calculation uses the MCC credit rate and the mortgage interest paid; it is subject to an annual IRS cap (commonly referenced as $2,000), and any unused credit may be carried forward per the form’s instructions. If you itemize deductions, claiming the credit requires reducing your mortgage interest deduction on Schedule A by the amount of the credit. Special rules apply when you refinance, sell the home, or when co-ownership and program rules change, so keep documentation and consult the issuing agency or a tax advisor when uncertainties arise.
References
– Internal Revenue Service. “About Form 8396, Mortgage Interest Credit.”
– Internal Revenue Service. “Publication 530, Tax Information for Homeowners.”
– Internal Revenue Service. “About Form 1098, Mortgage Interest Statement.”
– Investopedia. “Form 8396: Mortgage Interest Credit.” (summary of IRS rules and program practices)
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