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: Mortgage Interest Credit – Additional Considerations
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:
- Refinancing your mortgage. If you refinance the mortgage tied to your original MCC, you may need to obtain a reissued certificate (RMCC) to remain eligible for the credit. Without the reissued certificate, you can’t claim the mortgage interest credit going forward, even if your loan terms remain similar.
- Limitations on double benefits. To claim both the mortgage interest deduction and the mortgage interest credit on the same interest, you must reduce your itemized deduction by the amount of interest used to calculate your credit. This prevents taxpayers from receiving a double tax benefit.
- Income limitations. MCC programs often impose income limits based on household size and geographic area. If your income exceeds these limits, you may not be eligible for the MCC or the associated tax credit. Check with your issuing agency for the most current income thresholds.
- Recordkeeping and documentation. Maintain copies of your MCC, loan documents, Form 1098 and completed Form 8396 for at least three years. The IRS may request these documents in the event of an audit or to verify any carryforward credits.
Who Needs to File Form 8396: Mortgage Interest Credit?
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:
- You received a mortgage credit certificate in the current or a previous tax year.
- You paid mortgage interest on a home financed using an MCC-supported loan.
- You refinanced your mortgage but received a reissued MCC and remain eligible for the credit.
- You have carryforward credit from prior years that you’re eligible to apply to this year’s tax return.
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.
Frequently Asked Questions
Can I Claim Both the Mortgage Interest Credit and Mortgage Interest Deduction?
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.
What Happens If I Refinance My MCC-Supported Loan?
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.
Bottom Line
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.
Tax Planning Tips
- A financial advisor can help optimize your portfolio to lower your tax liability. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an estimate.
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