Publication 530 - Tax Information For Homeowners

Home Acquisition Debt

Ordering rule. If only a part of a loan is

year for part of the home mortgage interest you

qualified principal residence indebtedness, you

pay.

Home acquisition debt is a mortgage you took

can exclude only the amount of the discharge

out after October 13, 1987, to buy, build, or

Who qualifies. You may be eligible for the

that is more than the amount of the loan (imme-

substantially improve a qualified home. It also

credit if you were issued a mortgage credit certif-

diately before the discharge) that is not qualified

must be secured by that home.

icate (MCC) from your state or local govern-

principal residence indebtedness.

If the amount of your mortgage is more than

ment. Generally, an MCC is issued only in

the cost of the home plus the cost of any sub-

connection with a new mortgage for the

Qualified Home

stantial improvements, only the debt that is not

purchase of your main home.

more than the cost of the home plus improve-

The MCC will show the certificate credit rate

This means your main home or your second

ments qualifies as home acquisition debt.

you will use to figure your credit. It also will show

home. A home includes a house, condominium,

the certified indebtedness amount. Only the in-

Home acquisition debt limit. The total

cooperative, mobile home, house trailer, boat, or

terest on that amount qualifies for the credit. See

amount you can treat as home acquisition debt

similar property that has sleeping, cooking, and

Figuring the Credit, later.

at any time on your home cannot be more than

toilet facilities.

$1 million ($500,000 if married filing separately).

You must contact the appropriate gov-

Main home. You can have only one main

TIP

ernment agency about getting an MCC

Discharges of qualified principal residence

home at any one time. This is the home where

before you get a mortgage and buy

indebtedness. You can exclude from gross

you ordinarily live most of the time.

your home. Contact your state or local housing

income any discharges of qualified principal res-

finance agency for information about the availa-

idence indebtedness made after 2006 and

Second home and other special situations.

bility of MCCs in your area.

before 2012. You must reduce the basis of your

If you have a second home, use part of your

principal residence (but not below zero) by the

home for other than residential living (such as a

How to claim the credit. To claim the credit,

amount you exclude.

home office), rent out part of your home, or are

complete Form 8396 and attach it to your Form

having your home constructed, see Qualified

Principal residence. Your principal resi-

1040. Include the credit in your total for Form

Home in Publication 936.

dence is the home where you ordinarily live most

1040, line 53; be sure to check box a on that line.

of the time. You can have only one principal

residence at any one time.

Reducing your home mortgage interest de-

Limit on Deduction

duction. If you itemize your deductions on

Qualified principal residence indebted-

Schedule A (Form 1040), you must reduce your

If your adjusted gross income (AGI) on Form

ness. This is a mortgage that you took out to

home mortgage interest deduction by the

1040, line 38, is more than $100,000 ($50,000 if

buy, build, or substantially improve your princi-

amount of the mortgage interest credit shown on

your filing status is married filing separately), the

pal residence and that is secured by that resi-

Form 8396, line 3. You must do this even if part

amount of your mortgage insurance premiums

dence. If the amount of your original mortgage is

of that amount is to be carried forward to 2009.

that are deductible is reduced and may be elimi-

more than the cost of your principal residence

nated. See Line 13 in the instructions for Sched-

plus the cost of substantial improvements, quali-

Selling your home. If you purchase a home

ule A&B (Form 1040) and complete the

fied principal residence indebtedness cannot be

after 1990 using an MCC, and you sell that

Mortgage Insurance Premiums Deduction

more than the cost of your principal residence

home within 9 years, you may have to recapture

Worksheet to figure the amount you can deduct.

plus improvements.

(repay) all or part of the benefit you received

If your AGI is more than $109,000 ($54,500 if

Any debt secured by your principal residence

from the MCC program. For additional informa-

married filing separately), you cannot deduct

that you use to refinance qualified principal resi-

tion, see Recapturing (Paying Back) a Federal

your mortgage insurance premiums.

dence indebtedness is qualified principal resi-

Mortgage Subsidy, in Publication 523.

dence indebtedness up to the amount of your

Form 1098. The amount of mortgage insur-

old mortgage principal just before the refinanc-

Figuring the Credit

ance premiums you paid during 2008, should be

ing. Additional debt incurred to substantially im-

reported in box 4; see Form 1098, Mortgage

prove your principal residence is also qualified

Interest Statement in Publication 936.

Figure your credit on Form 8396.

principal residence indebtedness.

Mortgage not more than certified indebted-

Amount you can exclude. You can only

ness. If your mortgage loan amount is equal to

exclude debt discharged after 2006 and before

Mortgage Interest

(or smaller than) the certified indebtedness

2012. The most you can exclude is $2 million ($1

amount shown on your MCC, enter on Form

million if married filing separately). You cannot

Credit

8396, line 1, all the interest you paid on your

exclude any amount that was discharged be-

mortgage during the year.

cause of services performed for the lender or on

account of any other factor not directly related

The mortgage interest credit is intended to help

Mortgage more than certified indebtedness.

either to a decline in the value of your residence

lower-income individuals afford home owner-

If your mortgage loan amount is larger than the

or to your financial condition.

ship. If you qualify, you can claim the credit each

certified indebtedness amount shown on your

MCC, you can figure the credit on only part of

Table 1. Where To Deduct Interest and Taxes Paid on Your Home

the interest you paid. To find the amount to enter

See the text for information on what expenses are eligible.

on line 1, multiply the total interest you paid

during the year on your mortgage by the follow-

ing fraction.

IF you are eligible to deduct . . .

THEN report the amount

on Schedule A (Form 1040) . . .

Certified indebtedness

real estate taxes

line 6.

amount on your MCC

Original amount of your

home mortgage interest and points reported

line 10.

mortgage

on Form 1098

The fraction will not change as long as you

home mortgage interest not reported on Form

line 11.

are entitled to take the mortgage interest credit.

1098

Example. Emily bought a home this year.

points not reported on

line 12.

Her mortgage loan is $125,000. The certified

Form 1098

indebtedness amount on her MCC is $100,000.

She paid $7,500 interest this year. Emily figures

qualified mortgage insurance premiums

line 13.

the interest to enter on Form 8396, line 1, as

follows:

Publication 530 (2008)

Page 7

Publication 530 - Tax Information For Homeowners - 2008 Page 7

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