Publication 530 - Tax Information For Homeowners

Mortgage Interest

Table 2. Effect of Refinancing on Your Credit

Keep for Your Records

Credit

IF you get a new (reissued) MCC and the

THEN the interest you claim on Form 8396,

amount of your new mortgage is ...

line 1, is* ...

The mortgage interest credit is intended to help

lower-income individuals afford home owner-

smaller than or equal to the certified

all the interest paid during the year on your new

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

indebtedness amount on the new MCC

mortgage.

year for part of the home mortgage interest you

larger than the certified indebtedness

interest paid during the year on your new

pay on Form 8396.

amount on the new MCC

mortgage multiplied by the following fraction.

Who qualifies. You may be eligible for the

credit if you were issued a qualified Mortgage

certified indebtedness

Credit Certificate (MCC) from your state or local

amount on your new MCC

government. Generally, an MCC is issued only

original amount of your

in connection with a new mortgage for the

mortgage

purchase of your main home.

The MCC will show the certificate credit rate

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

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

See New MCC cannot increase your credit.

the certified indebtedness amount. Only the in-

terest on that amount qualifies for the credit. See

Figuring the Credit, later.

Example. Emily bought a home this year.

a 40% ownership interest in the home. John paid

Her mortgage loan is $125,000. The certified

$5,400 mortgage interest this year and George

You must contact the appropriate gov-

ernment agency about getting an MCC

indebtedness amount on her MCC is $100,000.

paid $3,600.

TIP

before you get a mortgage and buy

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

The MCC shows a credit rate of 25% and a

your home. Contact your state or local housing

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

certified indebtedness amount of $130,000. The

finance agency for information about the availa-

follows:

loan amount (mortgage) on their home is

bility of MCCs in your area.

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

$100,000

How to claim the credit. To claim the credit,

cause the credit rate is more than 20%.

80%

(.80)

$125,000

complete Form 8396 and attach it to your Form

John figures the credit by multiplying the

1040 or Form 1040NR. Include the credit in your

$7,500

.80

$6,000

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

total for Form 1040, line 53, or Form 1040NR,

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

line 50; be sure to check box c and write “Form

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

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

8396” on that line.

each later year, she will figure her credit using

60%).

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

George figures the credit by multiplying the

Reducing your home mortgage interest de-

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

duction. If you itemize your deductions on

Schedule A (Form 1040), you must reduce your

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

Limits

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

home mortgage interest deduction by the

amount of the mortgage interest credit shown on

40%).

Two limits may apply to your credit.

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

•

A limit based on the credit rate, and

of that amount is to be carried forward to 2012.

Carryforward

•

A limit based on your tax.

Selling your home. If you purchase a home

after 1990 using an MCC, and you sell that

If your allowable credit is reduced because of

home within 9 years, you may have to recapture

Limit based on credit rate. If the certificate

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

(repay) all or part of the benefit you received

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

ward the unused portion of the credit to the next

from the MCC program. For additional informa-

allowed cannot be more than $2,000.

3 years or until used, whichever comes first.

tion, see Recapturing (Paying Back) a Federal

Mortgage Subsidy, in Publication 523.

Example. You receive a mortgage credit

Limit based on tax. Your credit (after apply-

certificate from State X. This year, your regular

ing the limit based on the credit rate) generally

Figuring the Credit

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

cannot be more than the following.

minimum tax, and your mortgage interest credit

•

Form 1040 filers: Your regular tax liability

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

Figure your credit on Form 8396.

on Form 1040, line 44, plus any alternative

used mortgage interest credit for this year is

Mortgage not more than certified indebted-

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

minimum tax on Form 1040, line 45, minus

ness. If your mortgage loan amount is equal to

certain other credits.

this amount to the next 3 years or until used,

(or smaller than) the certified indebtedness

whichever comes first.

•

Form 1040NR filers: Your regular tax lia-

amount shown on your MCC, enter on Form

bility on Form 1040NR, line 42, plus any

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

Credit rate more than 20%. If you are subject

mortgage during the year.

alternative minimum tax on Form 1040NR,

to the $2,000 limit because your certificate credit

line 43, minus certain other credits.

Mortgage more than certified indebtedness.

rate is more than 20%, you cannot carry forward

Use Form 8396 to figure this limit.

If your mortgage loan amount is larger than the

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

certified indebtedness amount shown on your

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

Dividing the Credit

MCC, you can figure the credit on only part of

the interest you paid. To find the amount to enter

Example. In the earlier example under Di-

If two or more persons (other than a married

on line 1, multiply the total interest you paid

viding the Credit, John and George used the

couple filing a joint return) hold an interest in the

during the year on your mortgage by the follow-

entire $2,000 credit. The excess

home to which the MCC relates, the credit must

ing fraction.

be divided based on the interest held by each

$1,350 − $1,200

John

$150

person.

$900 − $800

George

$100

Certified indebtedness amount on your MCC

$150 for John ($1,350 − $1,200) and $100 for

Example. John and his brother, George,

Original amount of your mortgage

George ($900 − $800) cannot be carried forward

were issued an MCC. They used it to get a

mortgage on their main home. John has a 60%

to future years, despite the respective tax liabili-

The fraction will not change as long as you

are entitled to take the mortgage interest credit.

ownership interest in the home, and George has

ties for John and George.

Publication 530 (2011)

Page 8

Publication 530 - Tax Information For Homeowners - 2011 Page 8

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