Who Can File Form 8396?
To file Form 8396, you must meet specific eligibility criteria. The most crucial requirement is that you have an MCC issued by a state or local government agency under a qualified mortgage credit certificate program. These certificates are typically issued to lower- and moderate-income individuals who are purchasing their primary residence. The MCC program is designed to help make homeownership more affordable by providing a federal tax credit for part of the mortgage interest paid.
Obtaining a Mortgage Credit Certificate (MCC)
Obtaining an MCC involves several steps. First, you need to identify the government agencies in your area that issue these certificates. These can include state housing finance agencies, local governments, or other authorized entities. It’s essential to ensure that the MCC is related to your primary residence and is issued within the jurisdiction of the issuing agency. This certificate will specify the credit rate, which can range between 10% and 50%, and this rate will be used to calculate your mortgage interest credit.
Step-by-Step Guide to Filing Form 8396
Part I: Current Year Mortgage Interest Credit
Filing Form 8396 involves several key steps:
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Enter the Interest Paid: Start by entering the interest paid on the certified indebtedness amount, which you can find in Box 1 of Form 1098.
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Enter the Certificate Credit Rate: Next, enter the credit rate shown on your MCC. This rate determines how much of your mortgage interest qualifies for the credit.
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Calculate the Mortgage Interest Credit: If your credit rate is 20% or less, calculate the mortgage interest credit by multiplying the interest paid by the credit rate. For example, if you paid $10,000 in interest and your credit rate is 15%, your credit would be $1,500.
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Adjust Your Home Mortgage Interest Deduction: Remember to reduce your deduction for home mortgage interest on Schedule A by the amount of the credit claimed. This ensures you’re not double-benefiting from the same interest payments.
Part II: Mortgage Interest Credit Carryforward
If the amount of your mortgage interest credit exceeds your tax liability for the year, you may have a carryforward credit for future years. To determine this:
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Calculate any excess credit that cannot be claimed in the current year.
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Report this carryforward credit on Form 8396 for the following year.
Special Considerations
There are several special considerations to keep in mind when claiming the mortgage interest credit:
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Residence Requirements: The residence must meet specific price and value requirements relative to the local housing market.
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Primary Residence: The home must be your primary residence and within the jurisdiction of the issuing agency.
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Refinancing or Selling: If you refinance your mortgage or sell your residence within nine years, there may be implications for your credit, including potential recapture of the credit claimed.
Comparison with Form 1098
It’s important to distinguish between Form 8396 and Form 1098:
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Form 1098 shows the total mortgage interest paid during the year.
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Form 8396 is used specifically to claim the mortgage interest credit based on an MCC.
Attachment and Submission
Once you’ve completed Form 8396:
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Attach it to your individual federal income tax return (either Form 1040, Form 1040-SR, or Form 1040-NR).
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Keep a copy of Form 8396 for future reference, especially if you have carryforward credits.
