Form 8396 is how you claim the mortgage interest credit, a federal credit for homeowners who were issued a qualified Mortgage Credit Certificate (MCC) by a state or local government agency. You multiply the interest paid on the certified loan amount by the credit rate on your certificate, claim the result on Schedule 3, and reduce your Schedule A mortgage interest deduction by the same amount. Without an MCC, you can't use this form at all.
Everything below comes from the 2025 Form 8396 and the instructions printed on its second page, as of October 2026.
Who qualifies for the mortgage interest credit
- You hold a qualified MCC issued by a state or local governmental unit or agency under a qualified mortgage credit certificate program.
- The home is your main home and sits within the jurisdiction of the agency that issued the certificate.
- The mortgage interest wasn't paid to a related person.
- Homestead Staff Exemption Certificates and certificates from the Federal Housing Administration, Department of Veterans Affairs and Farmers Home Administration don't count.
That last point catches people. An FHA or VA loan isn't the same thing as an MCC. The certificate is a separate document from your loan papers, and it shows the certificate credit rate you'll need on line 2.
How the credit is worked out
| Line | What you enter | The rule to watch |
|---|---|---|
| 1 | Interest paid on the certified indebtedness amount | Usually box 1 of Form 1098, but only the share tied to the loan amount on your MCC |
| 2 | The certificate credit rate from your MCC | Not your mortgage interest rate. The rate can't be less than 10% or more than 50%. |
| 3 | Line 1 times line 2 | If the rate is more than 20%, the credit can't be more than $2,000 |
| 4 to 6 | Carryforwards from 2022, 2023 and 2024 | From your 2024 Form 8396 |
| 8 | Limit based on your tax | From the Credit Limit Worksheet |
| 9 | Current-year credit | The smaller of line 7 or line 8, carried to Schedule 3, line 6g |
Say you paid interest on the certified amount and your certificate rate is 20% or less: line 3 is simply the interest times the rate. If the rate is above 20%, you still multiply, but you can't enter more than $2,000, and if someone other than your spouse owns part of the home, that $2,000 is split by ownership share.
The deduction trade-off most homeowners miss
Here's the part that surprises people. If you itemize, you must reduce the home mortgage interest you deduct on Schedule A by the full amount on Form 8396, line 3, even if part of that credit can't be used this year and gets carried forward. So the credit and the deduction don't stack on the same dollars.
Even so, a credit cuts your tax bill directly, while a deduction only cuts taxable income, so the credit usually does more for each dollar it covers. The credit lands on Schedule 3, line 6g, once the Credit Limit Worksheet has capped it at your tax.
Carrying unused credit forward
If your tax isn't high enough to use the whole credit, Part II works out what's left. An unused credit can be carried forward to the next 3 tax years or until it's used, whichever comes first. The current-year credit is used first, then prior-year credits starting with the earliest.
There's one exception: if you hit the $2,000 cap because your rate is above 20%, no amount over that cap can be carried forward. Keep a copy of this year's form, because next year's lines 4 to 6 come straight from it.
Refinancing without losing the credit
You can refinance and keep the credit only if the MCC is reissued and the new certificate meets every condition below:
- It's issued to the holders of the existing certificate for the same property.
- It entirely replaces the existing certificate.
- The certified indebtedness can't exceed the outstanding balance on the existing certificate.
- The credit rate can't be higher than the existing certificate's rate.
- It can't produce a bigger line 3 amount than the original certificate would have allowed for any year.
The instructions also warn that the original certificate keeps acting as a ceiling: each year you work out what the old MCC would have allowed on the interest originally scheduled, and that can limit your credit even if the new loan has a lower interest rate.
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Selling within 9 years: recapture
If you buy a home with an MCC and sell it within 9 years, you may have to pay back some of the credit. That's handled on Form 8828, Recapture of Federal Mortgage Subsidy, and IRS Publication 523 explains it. If you're thinking about a sale, check this before you list the property.
The verdict
If you have a Mortgage Credit Certificate, file Form 8396 every year: it's one of the few homeowner credits that comes off your tax rather than your income. Read the rate from the certificate, not the loan, remember the $2,000 cap above a 20% rate, and lower your Schedule A interest by line 3. If you don't have an MCC, this form isn't for you, and your Form 1098 interest belongs on Schedule A instead.
Frequently asked questions
What is Form 8396 used for?
It figures the mortgage interest credit for holders of a qualified Mortgage Credit Certificate and any credit carryforward to the next year.
What is the maximum mortgage interest credit?
If your certificate credit rate is 20% or less, there's no fixed cap beyond your tax limit. If the rate is more than 20%, the credit on line 3 can't be more than $2,000.
Can I claim the mortgage interest credit and deduct the interest too?
You can deduct the rest of the interest on Schedule A, but you must reduce that deduction by the credit amount on Form 8396, line 3.
How long can the mortgage interest credit be carried forward?
An unused credit can be carried forward to the next 3 tax years or until it's used, whichever comes first, except any amount over the $2,000 cap.
Do FHA or VA loans qualify for Form 8396?
No. Certificates issued by the Federal Housing Administration, Department of Veterans Affairs and Farmers Home Administration don't qualify. You need a qualified MCC from a state or local agency.
