Form 8396
Candlefocus EditorThe mortgage interest credit reduces the amount of taxes paid by qualifying homeowners by providing a credit of up to $2,000 per year against their income taxes. This credit is available annually and can be taken for the life of the loan, provided the homeowner still meets the requirements of the program. However, the total value of the credit received cannot exceed the total mortgage interest paid each year.
To be eligible to take the mortgage interest credit, the homeowners must first obtain a mortgage credit certificate from a local or state government agency. E.g. if the maximum amount of applicable credit for the year is $2,000, the homeowner must provide evidence that they paid at least $2,000 in mortgage interest during that year. This certificate is then used to support a claim for the mortgage interest credit on IRS Form 8396.
To file IRS Form 8396 homeowners must first determine their status as a qualifying individual, have a valid mortgage credit certificate, provide additional case facts to support their claim, and then use the following equation to calculate the total credit amount: number of qualified residence interest paid x taxable interest rate x mortgage interest credit rate = the mortgage interest credit.
In addition, the IRS requires that the homeowner will take all the necessary precautions to ensure that the mortgage interest data being provided is accurate. Furthermore, if the homeowner’s tax filing status or other case facts change, the resulting credit amount may need to be recalculated to reflect the new calculations. This may also require amending your previously filed Form 8396.
Overall, IRS Form 8396 serves as a useful tool for lower- to moderate-income earners who are attempting to obtain home ownership. By using this form, homeowners have the ability to calculate their rightful Mortgage Interest Credit which will allow them to reduce the amount of taxes they pay and afford that dream house.