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What is Mortgage Interest Credit (Form 8396)?

What is Mortgage Interest Credit (Form 8396)?

When it is time for mortgage interest credit calculation, the IRS expects you to file it using Form 8396 plus the carryover. 

What Is Form 8396: Mortgage Interest Credit?

Mortgage interest credit is a scheme that helps low-income taxpayers hold ownership of homes. The Internal Revenue Service offers Form 8396 to homeowners with mortgage interest claims. However, only homeowners with a mortgage credit certificate (MCC) can claim the deduction. 

Who Uses Form 8396?

Form 8396 is available for individuals as well as the IRS. After filing and submitting the form, the IRS will review it to ensure it is clear of errors. However, if the IRS calculates your return and observes some omissions, the office will contact you to refile the tax returns to correct the mistaken credit on 8396. 

For example, some taxpayers may claim the credit twice on Form 8396 and also by itemizing deductions on Schedule A. In this situation, the IRS will resolve the issue by reducing the amount of deduction by the interest credit. 

How To Fill Out and Read Form 8396

The IRS divides Form 8396 in two. The first part (Part I) records the mortgage interest credit for the current tax season. While the second part (Part II) is for resolving how much should be brought forward to the next tax season. 

Part I: Current Year Mortgage Interest Credit

Here are the steps to file Part I of Form 8296:

  • Use Form 1098 to claim the credit.

  • Use MCC

  • Use the previous year's tax record.

  • Use information from your present tax record.

Here is how to fill the form:

  • Line 1 is for the mortgage interest paid to cancel or reduce your tax debt on your MCC. The amount paid on mortgage interest is stated in Box 1 of Form 1098. However, the debt amount must be equal to the mortgage. But if the amount is less than your mortgage, you'll have to spread the interest paid on Form 1098. The best way to be sure about the move is by reading publication 530.

  • Line 2 is the section for the MCC certificate credit rate.

  • Line 3 is the combination of Lines 1 and 2 for taxpayers with a certificate credit rate of 20% and less.

  • Line 4 to 6 reports the mortgage interest credit carried forward from the previous tax years as filed on Form 8396. Line 7 is for filling in the amount of the credit. However, remember that you can only back file three years of mortgage interest credit. 

  • Line 8 calculates the limit of your mortgage interest credit determined by your tax liability. You can calculate your limit based on the instructions on Form 8396.

  • Line 9 is for inputting the remainder of Line 7 or Line 8.

Part II: Mortgage Interest Credit Carryforward

Part II calculates the mortgage interest credits for the year and what to carry forward to the coming tax year.

Remember that you can only file Part II of Form 8296 if your Line 7 of Part I is higher than Line 9 in Part 1. The second part requires the information you used in the first part. 

Special Considerations When Filing Form 8396

The mortgage interest credit comes with limitations discussed below:

  • The property must meet the requirement of a local housing market in price and value.

  • The home written on the certificate must be in the exact location or jurisdiction of the issuing agency.

  • It must be the primary residence of the taxpayer.

  • If you use the itemizing deduction method on Schedule A, the taxpayer must ensure the deduction and credit claim are balanced.

  • The property can be certified if the mortgage is refinanced.

  • Homeowners that have not reached 9 years before selling the home must repay the credit.



Tiffany Gaskin
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