Publication 530 - Tax Information For Homeowners

Table 2. Effect of Refinancing on Your Credit

$100,000

= 80% (.80)

$125,000

IF you get a new (reissued) MCC and the

THEN the interest you claim on Form 8396,

$7,500 x

.80

$6,000

amount of your new mortgage is ...

line 1, is* ...

smaller than or equal to the certified

all the interest paid during the year on your new

Emily enters $6,000 on Form 8396, line 1. In

each later year, she will figure her credit using

indebtedness amount on the new MCC

mortgage.

only 80% of the interest she pays for that year.

larger than the certified indebtedness

interest paid during the year on your new

amount on the new MCC

mortgage multiplied by the following fraction.

Limits

certified indebtedness

amount on your new MCC

Two limits may apply to your credit.

•

A limit based on the credit rate, and

original amount of your

mortgage

•

A limit based on your tax.

*The credit using the new MCC cannot be more than the credit using the old MCC.

See New MCC cannot increase your credit.

Limit based on credit rate. If the certificate

credit rate is higher than 20%, the credit you are

Credit rate more than 20%. If you are subject

There are two methods for figuring the credit

allowed cannot be more than $2,000.

to the $2,000 limit because your certificate credit

you could have claimed. Under one method, you

rate is more than 20%, you cannot carry forward

Limit based on tax. Your credit (after apply-

figure the actual credit that would have been

any amount more than $2,000 (or your share of

ing the limit based on the credit rate) generally

allowed. This means you use the credit rate on

the $2,000 if you must divide the credit).

cannot be more than your regular tax liability on

the old MCC and the interest you would have

Form 1040, line 44, plus any alternative mini-

paid on the old loan.

Example. In the earlier example under Di-

mum tax on Form 1040, line 45, minus certain

If your old loan was a variable rate mortgage,

viding the Credit, John and George used the

other credits. Use Form 8396 to figure this limit.

you can use another method to determine the

entire $2,000 credit. The excess $150 for John

($1,350 − $1,200) and $100 for George ($900 −

credit that you could have claimed. Under this

Dividing the Credit

$800) cannot be carried forward to future years,

method, you figure the credit using a payment

despite the respective tax liabilities for John and

schedule of a hypothetical self-amortizing mort-

If two or more persons (other than a married

George.

gage with level payments projected to the final

couple filing a joint return) hold an interest in the

maturity date of the old mortgage. The interest

home to which the MCC relates, the credit must

rate of the hypothetical mortgage is the annual

Refinancing

be divided based on the interest held by each

percentage rate (APR) of the new mortgage for

person.

purposes of the Federal Truth in Lending Act.

If you refinance your original mortgage loan on

The principal of the hypothetical mortgage is the

which you had been given an MCC, you must

Example. John and his brother, George,

remaining outstanding balance of the certified

get a new MCC to be able to claim the credit on

were issued an MCC. They used it to get a

mortgage indebtedness shown on the old MCC.

the new loan. The amount of credit you can

mortgage on their main home. John has a 60%

claim on the new loan may change. Table 2

ownership interest in the home, and George has

You must choose one method and use

summarizes how to figure your credit if you refi-

a 40% ownership interest in the home. John paid

it consistently beginning with the first

nance your original mortgage loan.

$5,400 mortgage interest this year and George

tax year for which you claim the credit

CAUTION

An issuer may reissue an MCC after you

paid $3,600.

based on the new MCC.

refinance your mortgage. If you did not get a

The MCC shows a credit rate of 25% and a

new MCC, you may want to contact the state or

As part of your tax records, you should

certified indebtedness amount of $130,000. The

local housing finance agency that issued your

TIP

keep your old MCC and the schedule

loan amount (mortgage) on their home is

original MCC for information about whether you

of payments for your old mortgage.

$120,000. The credit is limited to $2,000 be-

can get a reissued MCC.

cause the credit rate is more than 20%.

John figures the credit by multiplying the

Year of refinancing. In the year of refinanc-

mortgage interest he paid this year ($5,400) by

ing, add the applicable amount of interest paid

the certificate credit rate (25%) for a total of

First-Time Homebuyer

on the old mortgage and the applicable amount

$1,350. His credit is limited to $1,200 ($2,000 ×

of interest paid on the new mortgage, and enter

Credit

60%).

the total on Form 8396, line 1.

George figures the credit by multiplying the

If your new MCC has a credit rate different

mortgage interest he paid this year ($3,600) by

from the rate on the old MCC, you must attach a

You may be able to claim a one-time tax credit of

the certificate credit rate (25%) for a total of

statement to Form 8396. The statement must

up to $7,500 ($3,750 if married filing separately),

$900. His credit is limited to $800 ($2,000 ×

show the calculation for lines 1, 2, and 3 for the

or 10% of the purchase price of your home

40%).

part of the year when the old MCC was in effect.

(whichever is smaller), if you are a first-time

It must show a separate calculation for the part

homebuyer. You (and your spouse if married)

of the year when the new MCC was in effect.

Carryforward

are considered a first-time homebuyer if:

Combine the amounts from both calculations for

line 3, enter the total on line 3 of the form, and

•

You purchased your main home in the

If your allowable credit is reduced because of

write “See attached” on the dotted line.

United States after April 9, 2008, and

the limit based on your tax, you can carry for-

before July 1, 2009, and

New MCC cannot increase your credit. The

ward the unused portion of the credit to the next

•

3 years or until used, whichever comes first.

credit that you claim with your new MCC cannot

You did not own any other main home

be more than the credit that you could have

during the 3-year period ending on the

Example. You receive a mortgage credit

claimed with your old MCC.

date of purchase.

certificate from State X. This year, your regular

In most cases, the agency that issues your

tax liability is $1,100, you owe no alternative

new MCC will make sure that it does not in-

If you constructed your main home, you are

minimum tax, and your mortgage interest credit

crease your credit. However, if either your old

treated as having purchased it on the date you

is $1,700. You claim no other credits. Your un-

loan or your new loan has a variable (adjustable)

first occupied the home.

used mortgage interest credit for this year is

interest rate, you will need to check this yourself.

Generally, the credit operates much like an

$600 ($1,700 − $1,100). You can carry forward

In that case, you will need to know the amount of

interest free loan and must be repaid over a

this amount to the next 3 years or until used,

the credit you could have claimed using the old

whichever comes first.

MCC.

15-year period. You cannot claim the credit if:

Page 8

Publication 530 (2008)

Publication 530 - Tax Information For Homeowners - 2008 Page 8

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