Home Credits

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

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

Residential Energy Credits: credits to help you recover some of the cost of improving the energy efficiency of your home

If you are planning to buy a home

The Mortgage Interest Credit is intended to help lower income 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 in connection 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 correct 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), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit allowable for the tax year.

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

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

If you have 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 2016.
  • The nonbusiness energy property credit, which applies to property that was placed in service (installed and ready to use) in 2006, 2007, and 2009 through 2014.

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 taken as deductions on your return for use of your home. You’ll also need to use these documents to determine the basis or adjusted basis of your home.

  • Records to keep include your purchase contract and settlement papers if you bought the property, or other evidence that shows you acquired it by gift, inheritance, etc..
  • Keep any receipts, canceled checks, and similar evidence 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-ways, and insurance reimbursements or tax deductions for casualty losses (fire, flood, etc.).

If you sell your home within nine years, you may have to recapture (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 are important for meeting any provision of the federal tax law. For things like as 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.

Publication 530, Tax Information for Homeowners

Publication 523, Selling Your Home

Form 8396, Mortgage Interest Credit

Form 5695, Residential Energy Credits

Have a different tax issue?  Browse common issues and situations at Get Help.

Is your tax problem more complex?  If your issue is causing you financial hardship, you have tried repeatedly and are not receiving a response from the IRS, or you feel your taxpayer rights are being violated, consider contacting Taxpayer Advocate Service (TAS).

Do you feel that you need help from a tax professional but can’t afford one? You may be eligible for representation from an attorney, certified public accountant (CPA), or enrolled agent associated with a Low Income Taxpayer Clinic.

Last modified July 27, 2016