Form 8396 is used to claim the mortgage interest credit. This is a nonrefundable federal tax credit available to certain homeowners who receive a mortgage credit certificate (MCC) through a state or local housing agency. The credit is designed to make homeownership more affordable for low- and moderate-income individuals by allowing a portion of the mortgage interest paid during the year to be directly applied against federal income taxes owed.
A financial advisor can help you determine your eligibility and how the credit fits into your overall tax strategy.
How to File Form 8396: Mortgage Interest Credit
To file Form 8396, you’ll need to have accurate documentation from your mortgage credit certificate and loan provider. The credit directly reduces your tax liability, so it’s important to provide the correct figures.
Before filing, review the terms of your MCC. Also take the time to gather documentation from your mortgage lender detailing the interest paid during the year.
Here are the steps to file Form 8396:
- Gather Your MCC and loan documents. Start by locating your MCC, which will include key information such as the credit rate, certificate number and issuing agency. You’ll also need your mortgage interest statement (Form 1098) from your lender to report the amount of interest paid during the year.
- Calculate the eligible credit amount. Multiply the total mortgage interest paid by the credit rate listed on your MCC. If the rate is over 20%, the credit is capped at $2,000 per year. If it’s 20% or less, the full calculated amount may be used. Factor in any carryforward amounts from previous years if applicable.
- Complete Form 8396. Fill out each section of the form, including your personal information, certificate details and credit calculation. If you refinanced your mortgage during the year, you may need to reduce your credit. You’ll also have to include details from the previous loan and MCC.
- Attach the form to your federal tax return. Include Form 8396 when you file your Form 1040. If you’re e-filing, most tax software platforms support this form. Make sure to retain a copy of your MCC and supporting documentation for your records.
- Track carryforward credit, if applicable. If you’re unable to use the full credit this year due to income limitations or other factors, you may be able to carry forward the unused portion to the next year. The form includes a section for tracking carryforward credits over a three-year period.
Form 8396 can be a valuable tool for reducing your federal tax bill. However, there are several important factors to consider that could affect your eligibility or the size of your credit. Here are a few additional considerations to keep in mind: Taxpayers who want to claim the mortgage interest credit based on a valid mortgage credit certificate issued by a state or local government agency must file Form 8396. Not every homeowner qualifies to file this form—it’s only for those who participate in an MCC program. Such programs are often geared toward first-time or lower income homebuyers. You may need to file Form 8396 if: If you’re unsure whether your mortgage is linked to an MCC or whether you qualify to file Form 8396, contact your mortgage lender or the housing finance agency that issued the certificate. Yes, you can claim both the mortgage interest credit and the mortgage interest deduction, but you can’t claim the full amount for both. You must subtract the amount of interest used to calculate the credit (on IRS Form 8396) from the total mortgage interest you deduct. The mortgage interest credit is a dollar-for-dollar reduction of your tax bill, while the deduction reduces your taxable income. One key difference is that you don’t need to itemize your deductions to claim the mortgage interest credit, but you do need to itemize to take the mortgage interest deduction. If you qualify for both, you can use the credit first, then deduct the remaining interest that wasn’t used to figure the credit. You’ll need to obtain a reissued mortgage credit certificate to continue claiming the credit. Without the RMCC, you’ll no longer be eligible to use Form 8396. Form 8396 allows qualified homeowners with a mortgage credit certificate to directly reduce their federal income tax liability. For those who meet the program’s income and homeownership requirements, this credit can offer meaningful annual tax savings. However, eligibility rules, deduction interactions and documentation requirements make careful filing essential. Photo credit: ©iStock.com/SolStock, ©iStock.com/Rockaa, ©iStock.com/LaylaBird Read the full article hereForm 8396: Mortgage Interest Credit – Additional Considerations
Who Needs to File Form 8396: Mortgage Interest Credit?
Frequently Asked Questions
Can I Claim Both the Mortgage Interest Credit and Mortgage Interest Deduction?
What Happens If I Refinance My MCC-Supported Loan?
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