(IRS) Form 8396 mortgage interest credit
- What is form 8396?
- Where do I get form 8396?
- Who is entitled to claim the Mortgage Interest Credit?
- How to complete the form 8396?
- How to file form 8396?
- Form 8396 Example:
What is form 8396?
Where do I get form 8396?
The tax form 8396 which is available at the website of the Internal Revenue Service www.irs.gov.
Who is entitled to claim the Mortgage Interest Credit?
The only document that qualifies the taxpayer for the credit is the Mortgage Credit Certificate (MCC). The MCC should be obtained before buying the home and getting the mortgage. The certificate must be issued by a state or local governmental unit or agency, pursuant to a qualified mortgage credit certificate program. However, there are certain restrictions. First of all, the property for which the certificate was issued has to be the main residence of the taxpayer. Secondly, the office of the entity that issued the certificate has to be located in the same jurisdiction as the home to which the certificate relates. What is more, if the interest on the mortgage has been paid to a person related to the homeowner, he or she is not entitled to claim the credit. The MCCs issued by the Federal Housing Administration, Department of Veteran Affairs, Farmers Home Administration and the certificates issued by the Homestead Staff Exemption are not sufficient to qualify for the tax credit.
How to complete the form 8396?
The form 8396 has to be filed for every tax year. In the beginning of the form, the taxpayer has to enter his or her name, the address of the property to which the MCC relates, but only if it is a different address than the one provided on the tax return. The taxpayer also has to enter the name of the entity that issued the MCC, its number and issue date.
After entering personal details and the information on the MCC, part I of the form begins. Here, the taxpayer has to fill out the information on the current year mortgage interest credit. First, the homeowner has to state the interest on the amount of debt and the credit rate included on the MCC. The taxpayer can enter the amounts given in the form 1098, called the Mortgage Interest Statement, which is provided by the lender. However, if the mortgage loan is higher than the amount provided on the MCC, the interest has to be prorated by multiplying the total interest by the ratio of the MCC loan to the original amount of the homeowner’s mortgage. In lines 4 – 5, the homeowner has to provide the amount of credit carryovers from the previous years, i.e. the mortgage interest credits, which were not used by the taxpayer in the last three years. In Line 8, the taxpayer is obliged to provide the limitation based on tax liability. This amount should be calculated using the accompanying Credit Limit Worksheet. The worksheet is used to determine the tax liability with the use of other tax forms, for instance the form 1040, 5695, 8910 or 8936. The mortgage credit for the current year is either the amount of the calculated credit or the amount of credit limitation, whichever is lesser. If the credit limitation equals zero or constitutes a negative value, the taxpayer may proceed to completing part II of the form in order to determine the credit carryforward to the following year. The instructions for filling out part II of the Mortgage Interest Credit form are clear, so it is very easy to calculate the carryover. The taxpayer only has to follow the steps described in lines 10 – 17.
However, the homeowners have to bear in mind that if they purchase a property with the use of MCC and then sell it within the period of nine years, they will be required to fill in the form 8828 and repay some of the credit.
It is necessary to keep the copy of the form, if there is any carryover to the next year, since it will facilitate the taxpayer to determine the credit for the next year.
All taxpayers, who co-own the property to which the form 8396 relates, need to divide the credit on the basis of the percentage of ownership each owner holds.
If the mortgage is refinanced, the entity that issued MCC has to prepare another certificate so that the taxpayer does not lose the right to claim the credit. The new MCC has to meet certain requirements. Firstly, it has to be issued to the holder of the existing certificate for the same home. Secondly, it has to replace the existing certificate in its entirety. The amount of debt on the existing certificate cannot be larger that the outstanding balance provided on the existing certificate or exceed the credit rate given on it.
How to file form 8396?
The form 8396 should be submitted together with the form 1040 U.S. Individual Income Tax Return or the form 1040N Nebraska Individual Income Tax Return. It can be e-filed, for instance with the use of the TurboTax account. If the homeowner has forgotten to attach the form 8396 to the tax return, but would like to claim the mortgage interest credit, he or she has to amend the tax return.
Form 8396 Example: