What Is Form 8396?

Form 8396 Explained in Less Than 5 Minutes

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Form 8396 is the IRS tax form used to determine and report mortgage interest credit for the current year. The credit is available to those who were issued a qualified Mortgage Credit Certificate (MCC) by a state or local government or another qualified agency.

Because this credit is limited based on the credit rate shown on your MCC and your overall tax liability, Form 8396 has two parts. One part calculates the mortgage interest credit for the current year; the other calculates how the credit should be carried forward to the next year in case the credit is limited.

Definition and Example of Form 8396

Form 8396 is the form taxpayers can use to calculate the mortgage interest credit for the year and any carryover of the credit to next year.

For example, if you purchased a home this year and received a qualified Mortgage Credit Certificate (MCC), you would use Form 8396 to report your mortgage interest credit to the IRS.

IRS Form 8396 2

How Is Form 8396 Used?

Form 8396 is used by individuals and the IRS. Individuals use Form 8396 to calculate and report the amount of their mortgage interest credit.

After Form 8396 is filed along with your tax return, the IRS will review it for accuracy. If the IRS believes that the amount of the mortgage interest credit reported on Form 8396 is incorrect, they may recalculate your return or attempt to communicate with you to resolve the issue.

For example, say you make the mistake of claiming the mortgage interest credit on Form 8396 but then also claim all of the mortgage interest you paid during the year as an itemized deduction on Schedule A. In this case, the IRS will likely recalculate your return to reduce the amount of your mortgage interest deduction by the amount of your credit.

Where To Get a Form 8396

Like most tax forms, Form 8396 can be downloaded as a PDF from the IRS website. It can also be completed in a tax software program.

How To Fill Out and Read Form 8396

Form 8396 has two parts. Part I involves calculating your mortgage interest credit for the current tax year. Part II is used to calculate how much, if any, of your mortgage interest credit should be carried forward to the next year.

Part I: Current-Year Mortgage Interest Credit

To complete Part I of Form 8396, you will need:

  • Your Form 1098 for the mortgage on which you are claiming the credit
  • Your MCC
  • Your previous year’s tax return
  • Information from other parts of your current tax return

Here is a breakdown of how the form should be completed:

Line 1 is where you input the mortgage interest you paid on your certified indebtedness amount as shown on your MCC. If your certified indebtedness amount is equal to your mortgage, then this amount will simply be the total mortgage interest you paid as reported in Box 1 of Form 1098. However, if your certified indebtedness amount is less than your mortgage, you will need to prorate the mortgage interest paid on Form 1098. If you’re not sure how to do this, check Publication 530.

Line 2 is where you input the certificate credit rate shown on your MCC.

If your certificate credit rate is 20% or less, Line 3 is the product of Line 1 and Line 2. If your certificate credit rate is greater than 20%, the amount you enter on Line 3 is the lesser of $2,000 or the product of Line 1 and Line 2.

Lines 4-6 require you to input your mortgage interest credit carryforward amounts, if any, from the prior three tax years as reported on last year’s Form 8396. These amounts are then summed on Line 7. Only the last three tax years are used because unused mortgage interest credit carryforwards expire after three tax years.

Line 8 is where the limitation of the mortgage interest credit based on your tax liability is calculated. You use the worksheet found in the Form 8396 instructions to calculate this limitation on your credit.

On Line 9, you input the smaller of Line 7 or Line 8.

Part II: Mortgage Interest Credit Carryforward

Part II is where you determine how much mortgage interest credit, by year, you will carry forward to next near. 

Part II of Form 8386 should only be completed if Line 9 in Part I was less than Line 7 in Part I.

All you need to complete Part II is the information you input in Part I; every line on Part II involves information from Part I or a previously completed line of Part II.

Can Form 8396 Be E-Filed?

Yes, Form 8396 can be e-filed as part of your tax return. However, if there is some aspect of your tax return that prevents your tax return from being e-filed, you would have to mail your tax return, including Form 8396, to the IRS. For example, if someone else tried to claim one of your dependents as theirs, you would need to send your tax return by mail.

Where To Mail Form 8396

If you file a paper tax return, you would mail Form 8396 as part of your completed tax return to the address found in your tax return’s instructions.

How To File Form 8396

Form 8396 is filed with the tax return for the year you are claiming the mortgage interest credit. You can e-file your tax return using tax software or a professional preparer. Alternatively, you could print out your tax return, including Form 8396, and mail it to the IRS.

Key Takeaways

  • IRS Form 8396 is used by taxpayers to determine and report their mortgage interest credit.
  • Part I of Form 8396 is used to calculate the taxpayer’s current-year mortgage interest credit, subject to Mortgage Credit Certificate (MCC) credit rate and tax liability limitations.
  • Part II of Form 8396 is used to determine the taxpayer’s mortgage interest credit carryforward amount to next year.
  • Form 8396 is filed along with the taxpayer’s individual tax return for the year.