Figuring the Credit: Homeowner Tax Costs (2025 IRS Guide)

This guide covers “Figuring the Credit” within homeowner tax costs. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 530 (2025), Tax Information for Homeowners, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

The mortgage interest credit is intended to help lower-income individuals afford home ownership. If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay.

Figuring the Credit

Figure your credit on Form 8396.

Mortgage not more than certified indebtedness.

If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year.

Mortgage more than certified indebtedness.

If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction.

Mortgage Larger than Certified Indebtedness

• Certified indebtedness amount on your MCC
• Original amount of your mortgage

The fraction won’t change as long as you are entitled to take the mortgage interest credit.

Example.

You bought a home this year. Your mortgage loan is $125,000. The certified indebtedness amount on the MCC is $100,000. You paid $7,500 interest this year. You figure the interest to enter on Form 8396, line 1, as follows:

You enter $6,000 on Form 8396, line 1. In each later year, you will figure your credit using only 80% of the interest you paid for that year.

Limits

Two limits may apply to your credit.

• A limit based on the credit rate.

• A limit based on your tax.

Limit based on credit rate.

If the certificate credit rate is higher than 20%, the credit you are allowed can't be more than $2,000.

Limit based on tax.

After applying the limit based on the credit rate, your credit generally can't be more than your tax liability. See the Credit Limit Worksheet in the Form 8396 instructions to figure the limit based on tax.

Dividing the Credit

If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person.

Example.

You and your sibling were issued an MCC. You used it to get a mortgage on their main home. You have a 60% ownership interest in the home, and your sibling has a 40% ownership interest in the home. You paid $5,400 mortgage interest this year and your sibling paid $3,600.

The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. The loan amount (mortgage) on their home is $120,000. The credit is limited to $2,000 because the credit rate is more than 20%.

You figure the credit by multiplying the mortgage interest you paid this year ($5,400) by the certificate credit rate (25%) for a total of $1,350. Your credit is limited to $1,200 ($2,000 × 60% (0.60)).

Your sibling figures the credit by multiplying the mortgage interest paid this year ($3,600) by the certificate credit rate (25%) for a total of $900. Your sibling’s credit is limited to $800 ($2,000 × 40% (0.40)).

Carryforward

If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first.

Example.

You receive an MCC from State X. This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. You claim no other credits. Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). You can carry forward this amount to the next 3 years or until used, whichever comes first.

Credit rate more than 20%.

If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you can't carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit).

Example.

In the earlier example under Dividing the Credit, you and your sibling used the entire $2,000 credit. The excess

$150 for you ($1,350 − $1,200) and $100 for your sibling ($900 − $800) can't be carried forward to future years, despite the respective tax liabilities for you and your sibling.

Refinancing

If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. The amount of credit you can claim on the new loan may change. Table 2 summarizes how to figure your credit if you refinance your original mortgage loan.

Table 2. Effect of Refinancing on Your Credit

• * The credit using the new MCC can't be more than the credit using the old MCC. See New MCC can't increase your credit, later.

An issuer may reissue an MCC after you refinance your mortgage. If you didn't get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC.

Year of refinancing.

In the year of refinancing, add the applicable amount of interest paid on the old mortgage and the applicable amount of interest paid on the new mortgage, and enter the total on Form 8396, line 1.

If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. The statement must show the calculation for lines 1, 2, and 3 for the part of the year when the old MCC was in effect. It must show a separate calculation for the part of the year when the new MCC was in effect. Combine the amounts from both calculations for line 3, enter the total on line 3 of the form, and enter “See attached” on the dotted line next to line 2.

New MCC can't increase your credit.

The credit that you claim with your new MCC can't be more than the credit that you could have claimed with your old MCC.

In most cases, the agency that issues your new MCC will make sure that it doesn't increase your credit. However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. In that case, you will need to know the amount of the credit you could have claimed using the old MCC.

There are two methods for figuring the credit you could have claimed. Under one method, you figure the actual credit that would have been allowed. This means you use the credit rate on the old MCC and the interest you would have paid on the old loan.

If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. Under this method, you figure the credit using a payment schedule of a hypothetical self-amortizing mortgage with level payments projected to the final maturity date of the old mortgage. The interest rate of the hypothetical mortgage is the annual percentage rate (APR) of the new mortgage for purposes of the Federal Truth in Lending Act. The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC.

Caution: You must choose one method and use it consistently beginning with the first tax year for which you claim the credit based on the new MCC.

Tip: As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 530 (2025), Tax Information for Homeowners: Mortgage Interest Credit — Figuring the Credit — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.