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 between January 1, 2016 and December 31, 2023.
- The nonbusiness energy property credit, which applies to property you placed in service (installed and ready to use) by December 31, 2021. The lifetime limitation aggregate credit for all tax years after 2005 is $500.
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.).