What Is Form 8396: Mortgage Interest Credit?

What Is Form 8396: Mortgage Interest Credit?

Form 8396 is an Internal Revenue Service (IRS) form used by homeowners to claim the mortgage interest credit. The aim of the mortgage interest credit is to help lower-income taxpayers afford homeownership. You can only claim the credit if you receive a mortgage credit certificate (MCC) from a state or local government agency.

Who Can File Form 8396?

Anyone who was issued an MCC from a state or local government agency is eligible to file Form 8396. Typically, an MCC is only issued to lower- and moderate-income individuals who are purchasing a primary residence with a new mortgage. An MCC is issued under a qualified mortgage credit certificate program.

Individuals who qualify can claim the credit each year using Form 8396 for part of the home mortgage interest paid.

How to File Form Form 8396

To file Form 8396, the filer must provide certain details, including:

• Name
• The name of the issuer of the MCC
• The certificate number and issue date
• Social Security Number

Part I requires the filer to calculate the current year's mortgage interest credit. The MCC will show the rate used to figure out your credit. The IRS limits the mortgage interest credit to a maximum of $2,000 per year.

Part II is used to determine the following year's carryforward credit. Once the form is completed attach it to your individual federal income tax return—Form 1040, Form 1040-SR, or Form 1040-NR.

Form 8396 is available on the IRS website.

Special Considerations When Filing Form 8396

There are some restrictions associated with the credit.

• The residence must meet specific price and value requirements relative to the local housing market.
• The home connected to the issued certificate must be in the same jurisdiction as the issuing agency.
• The property must be the tax filer's primary residence.

In addition, taxpayers who itemize their deductions on Schedule A must offset the amount of their deduction for mortgage interest by the amount of the credit claimed.

A new mortgage credit certificate is issued if the mortgage is refinanced, and homeowners who sell their residence within nine years may have to repay some of the credit issued.

Form 8396: Mortgage Interest Credit vs. Form 1098: Mortgage Interest Statement

Form 8396: Mortgage Interest Credit is different from Form 1098: Mortgage Interest Statement. Form 1098 shows the amount of interest and related expenses paid on a mortgage during the tax year and is sent out by banks and financial institutions. The loan interest shown on the MCC is usually the same amount in Box 1 of Form 1098.

The Bottom Line

Form 8396 offers lower- and moderate-income homeowners the opportunity to reduce the cost of homeownership by claiming a mortgage interest credit. However, you must meet specific eligibility requirements, including receiving an MCC from a state or local government agency.

If you qualify, Form 8396 can help reduce your annual tax burden by allowing you to claim part of your mortgage interest. Be sure to file the form each year, attach it to your tax return, and adhere to any other special restrictions that may apply to your specific situation.