Form 8396 Mortgage Interest Credit

Some homebuyers receive a Mortgage Credit Certificate (MCC) from a state or local government program. Form 8396, Mortgage Interest Credit, figures the credit that comes from that certificate, and any credit you carry forward. IRS: About Form 8396

Who can claim the credit

You can claim the credit only if a state or local governmental unit or agency issued you a qualified MCC under a qualified program. The home must be your main home, and it must be in the area covered by the issuing unit. If the interest was paid to a related person, you cannot claim the credit. IRS: Form 8396 (2025)

Homestead staff exemption certificates do not qualify. Certificates issued by the Federal Housing Administration, the Department of Veterans Affairs, and Farmers Home Administration do not qualify either. IRS: Form 8396 (2025)

Figuring the current-year credit

Line 1 is the interest you paid on the loan amount shown on your MCC. Line 2 is the certificate credit rate. The IRS says that rate must be at least 10% and no more than 50%. If the rate is 20% or less, multiply line 1 by line 2 and enter the result on line 3. If the rate is more than 20%, the amount on line 3 cannot be more than $2,000. IRS: Form 8396 (2025)

Where the amount goes

Line 9 is the current-year credit, after the tax limit on line 8. Include it on Schedule 3 (Form 1040), line 6g. You must also reduce your home mortgage interest deduction on Schedule A by the line 3 amount. The form says to do this even if part of the credit carries forward. IRS: Form 8396 (2025)

The tax limit and carryforward

The credit cannot be more than your tax liability after certain other credits. Form 8396 uses a Credit Limit Worksheet to figure this limit on line 8. If the credit on line 9 is less than the amount on line 7, you may have an unused credit to carry forward. The unused credit can carry to the next 3 tax years, or until it is used, whichever comes first. IRS: Form 8396 (2025)

If your rate is more than 20%, no amount above the $2,000 limit can be carried forward. IRS: Form 8396 (2025)

Selling within 9 years

If you buy a home with an MCC and sell it within 9 years, you may have to repay part of the credit. The form points to Publication 523 and Form 8828 for recapture rules. IRS: About Form 8828, Recapture of Federal Mortgage Subsidy

If you get a new loan

You can get a new loan without losing the credit only if the MCC is reissued and meets the conditions on the form. One condition is that the reissued certificate must replace the existing one for the same property. The form also limits the credit to what would have been allowed under the original certificate. IRS: Form 8396 (2025)

Records to keep

The MCC issuer, certificate number, and issue date.
Form 1098 or your lender statement showing the interest you paid.
The certificate credit rate, and any reissued certificate papers after a new loan.
Last year's Form 8396, if you have a carryforward.

Steps to follow

Find your MCC and its credit rate.
Get the interest paid for the year. In most cases, this matches box 1 of Form 1098.
Complete Part I, and apply the $2,000 limit if your rate is above 20%.
Reduce your Schedule A mortgage interest deduction by the line 3 amount.
Track any carryforward for the next year.

Keep the MCC papers and your Form 8396 copies with your mortgage records. The recapture rule can apply for 9 years after purchase, so keep them through that period.

For how the mortgage interest deduction works, see mortgage interest deduction and Form 1098.

General information, not advice for your situation.

Sources: Sources: IRS, About Form 8396, Mortgage Interest Credit (https://www.irs.gov/forms-pubs/about-form-8396); IRS, Form 8396 (2025) with instructions (https://www.irs.gov/pub/irs-pdf/f8396.pdf); IRS, About Form 8828 (https://www.irs.gov/forms-pubs/about-form-8828) This is general information, not advice about your specific return.

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