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Home Credits

If you own a home or are planning to buy one, you may have tax credits available. There are two common home credits:

Mortgage Interest Credit: helps lower-income individuals afford home ownership.

Residential Energy Credits: helps recover some of the cost of improving the energy efficiency of your home.

What do I need to know?

If you are planning to buy a home

The Mortgage Interest Credit helps certain individuals afford home ownership. If you qualify, you can claim the credit each year for part of the mortgage interest you pay.

You’ll need a qualified Mortgage Credit Certificate (MCC) from your state or local government. See recommended actions below.

If you’ve made your home energy efficient

You may be able to take Residential Energy Credits, if you made energy-saving improvements to your home and it’s in the United States. For example:  You may qualify if you install exterior windows that meet or exceed the Energy Star Program requirements to reduce heat loss. See recommended action below.

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What should I do?

If you are planning to buy a home

The Mortgage Interest Credit helps certain individuals afford home ownership. If you qualify, you can claim the credit each year for part of the mortgage interest you pay.

You’ll need a qualified Mortgage Credit Certificate (MCC) from your state or local government.

Generally, an MCC is issued only with a new mortgage for the purchase of your main home. The MCC will contain important information for calculating the credit, including the certificate credit rate (the percentage of the interest you can claim), and the “certified indebtedness amount” (only the interest on that amount qualifies for the credit).

You must ask the appropriate government agency for an MCC before you get a mortgage and buy your home. Contact your state or local housing finance agency for information about the availability of MCCs in your area.

To claim the credit, complete IRS Form 8396, Mortgage Interest Credit, and attach it to your income tax return.

If you itemize your deductions on IRS Schedule A (Form 1040), Itemized Deductions, you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit allowable for the tax year.

If you paid the mortgage interest to a related person, you can’t claim the credit.

If you’ve made your home energy efficient

You may be able to take Residential Energy Credits, if you made energy-saving improvements to your home and it’s in the United States. For example:  You may qualify if you install exterior windows that meet or exceed the Energy Star Program requirements to reduce heat loss.

Residential Energy Credits

  • The residential energy efficient property credit, which you can claim for property that’s placed in service by the end of 2019.
  • The nonbusiness energy property credit, which applies to property you placed in service (installed and ready to use) in 2018 and 2019. There is a total combined credit limit of $500 for all tax years after 2005.

You can claim both credits by completing IRS Form 5695, Residential Energy Credits, and attaching it to your tax return. This form explains what property qualifies for each credit and how to calculate each one. If you owned your home jointly with someone other than your spouse, each homeowner must complete his or her own IRS Form 5695.

Keeping good records

Keep full and accurate records to support your credits. Know the cost of your home, or the cost of major improvements to it, or the amounts you’ve taken as deductions on your tax return for use of your home. You’ll also need to use these documents to determine the basis (your original cost/purchase price) or adjusted basis (your cost, plus adjustments such as improvement costs) of your home.

  • Keep records that include your purchase contract and settlement papers if you bought the property, or other information that shows you acquired it by gift or inheritance.
  • Keep any receipts, canceled checks, and similar records for improvements or other additions to the basis of your home.
    • “Additions to basis” are items that go beyond minor repairs, and add to the value or extend the life of the property.
    • Examples include putting an addition on your home, replacing a roof, repaving a driveway, or rewiring.
  • You should also keep track of any decreases to the basis.
    • This includes residential energy credits, D.C. first-time homebuyer credit, allowed or allowable depreciation if you use your home for rental or business activities, payments received for property easements or right-of-way, and insurance reimbursements or tax deductions for casualty losses (fire, flood, etc.).

Note: If you sell your home within nine years, you may have to repay all or part of the benefit you received from the Mortgage Interest Credit program. See Form 8828, Recapture of Federal Mortgage Subsidy for more information.

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How will this affect me?

If you sell your home within nine years, you may have to repay all or part of the benefit you received from the Mortgage Interest Credit program.

You must keep your records for as long as they’re important for meeting any federal tax law requirement. For things like home basis information, this may mean keeping records for as long as you own the property and for a time after it’s sold.

If you refinance your original mortgage loan on which you received an MCC, you must get a new MCC to claim the credit on the new loan. The amount you can claim on the new loan may change.

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Wait, I still need help.

If your IRS problem is causing you financial hardship, you’ve tried repeatedly and aren’t receiving a response from the IRS, or you feel your taxpayer rights aren’t being respected, consider contacting the Taxpayer Advocate Service (TAS).

Browse common tax issues and situations at Get Help.

You may be eligible for representation from an attorney, Certified Public Accountant (CPA), or Enrolled Agent (EA) associated with a Low Income Taxpayer Clinic (LITC) for little or no cost. Low Income Taxpayer Clinics also provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language.