You may qualify for a mortgage interest credit if a state agency or a local government issued you a mortgage credit certificate for low-income housing.
Typically, a mortgage credit certificate is only issued when you purchase a home and take out a new mortgage – as opposed to doing a refinancing.
So the mortgage interest credit is essentially designed as a way to help low-income taxpayers afford homeownership.
Qualifying for the Mortgage Interest Credit
However, according to IRS rules, if you take the mortgage interest credit, you are required to reduce your mortgage interest deduction by the exact same amount of the credit.
Also, per IRS guidelines, the home to which the certificate relates must be your main residence and the home must also be located in the jurisdiction of the government agency that issued you the mortgage credit certificate.
You can calculate your credit on Form 8396, Mortgage Interest Credit.
After you figure your credit, put that number on line 53 of Form 1040 or line 50 of Form 1040NR. Regardless of which 1040 you use, remember to also check box c and write “Form 8396” on that line (i.e. line 53 of 1040 or line 50 of 1040NR).
Be sure, though, that you don’t accidentally claim this credit if you don’t really qualify for it.
For example, if you have a mortgage credit certificate issued by a federal entity – such as the Federal Housing Administration or the Department of Veterans Affairs – realize that those certificates do not qualify for the mortgage interest credit. Only mortgage credit certificates from state or local agencies are eligible.
What’s more, if the interest on your mortgage was paid to a relative, you cannot claim the mortgage interest credit.