Mortgage Tax Credit

Can you really get a mortgage tax credit that will reduce your actual tax by the amount of interest you paid?

Most of the time the mortgage interest is deducted on your tax return by itemized deductions on Schedule A. The itemized deductions can reduce your taxable income which automatically reduces your tax. But if you use this type of deduction you only lower your taxes by a percentage (same as your top tax rate) of the amount of interest you paid.

The mortgage interest tax credit reduces your total tax by the amount of interest claimed.

Who can claim this credit?

How much mortgage interest can you claim?

To be able to claim the mortgage interest credit you need to get a Mortgage Credit Certificate (also known as MCC) issued by your state or local government before you get your mortgage for your main home.

    Please note: Not all certificates qualify. Those issued by the Federal Housing Administration, Department of Veterans Affairs, and Farmers Home Administration, and Homestead Staff Exemption Certificates cannot be used for this credit.

Depending on the program that your state offers the Mortgage Credit Certificate will indicate a percentage (ranging from 10% to 50%) of the interest eligible for the mortgage tax credit.

Here are some details you need to know when claiming this credit

  • If the credit certificate rate is more than 20% the total tax credit is limited to $2000-

  • The credit is not a refundable credit. If your tax amount is lower than your credit amount you will not be able to use your complete credit. You can carry over the unused part of the tax credit to the next three tax years.

  • The form used to calculate the mortgage credit is called form 8396 and you must file it with either form 1040 or 1040NR.

  • If you sell the home within 9 years after you bought it you you have to repay part of the credit

  • If you also want to use the mortgage interest deduction, you can only use the percentage of the mortgage interest not calculated with this tax credit.

Here you can download form 8396.

Updated January 12, 2012

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