Publication 530 - Tax Information For First-Time Homeowners

Table 2. Effect of Refinancing on Your Credit

having your home constructed, see Qualified

Home in Publication 936.

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* ...

Limit on Deduction

smaller than or equal to the certified

all the interest paid during the year on your new

indebtedness amount on the new MCC

mortgage.

If your adjusted gross income (AGI) on Form

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

larger than the certified indebtedness

interest paid during the year on your new

your filing status is married filing separately), the

amount on the new MCC

mortgage multiplied by the following fraction.

amount of your mortgage insurance premiums

that are deductible is reduced and may be elimi-

certified indebtedness

nated. See Line 13 in the instructions for Sched-

amount on your new MCC

ule A&B (Form 1040) and complete the

Mortgage Insurance Premiums Deduction

original amount of your

Worksheet to figure the amount you can deduct.

mortgage

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

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

married filing separately), you cannot deduct

See New MCC cannot increase your credit.

your mortgage insurance premiums.

Form 1098. The amount of mortgage insur-

Certified indebtedness

1040. Include the credit in your total for Form

ance premiums you paid during 2007, should be

amount on your MCC

1040, line 54; be sure to check box a on that line.

reported in box 4; see Form 1098, Mortgage

Original amount of your

Reducing your home mortgage interest de-

Interest Statement in Publication 936.

mortgage

duction. If you itemize your deductions on

Schedule A (Form 1040), you must reduce your

The fraction will not change as long as you

home mortgage interest deduction by the

are entitled to take the mortgage interest credit.

Mortgage Interest

amount of the mortgage interest credit shown on

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

Example. Emily bought a home this year.

Credit

of that amount is to be carried forward to 2008.

Her mortgage loan is $125,000. The certified

indebtedness amount on her MCC is $100,000.

Selling your home. If you purchase a home

The mortgage interest credit is intended to help

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

after 1990 using an MCC, and you sell that

lower-income individuals afford home owner-

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

home within 9 years, you may have to recapture

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

follows:

(repay) all or part of the benefit you received

year for part of the home mortgage interest you

from the MCC program. For additional informa-

pay.

$100,000

tion, see Recapturing (Paying Back) a Federal

= 80% (.80)

$125,000

Mortgage Subsidy, in Publication 523.

Who qualifies. You may be eligible for the

credit if you were issued a mortgage credit certif-

$7,500 x

.80

$6,000

Figuring the Credit

icate (MCC) from your state or local govern-

ment. Generally, an MCC is issued only in

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

connection with a new mortgage for the

Figure your credit on Form 8396.

each later year, she will figure her credit using

purchase of your main home.

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

Mortgage not more than certified indebted-

The MCC will show the certificate credit rate

ness. If your mortgage loan amount is equal to

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

(or smaller than) the certified indebtedness

Limits

the certified indebtedness amount. Only the in-

amount shown on your MCC, enter on Form

terest on that amount qualifies for the credit. See

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

Two limits may apply to your credit.

Figuring the Credit, later.

mortgage during the year.

•

A limit based on the credit rate, and

You must contact the appropriate gov-

Mortgage more than certified indebtedness.

TIP

•

ernment agency about getting an MCC

A limit based on your tax.

If your mortgage loan amount is larger than the

before you get a mortgage and buy

certified indebtedness amount shown on your

your home. Contact your state or local housing

Limit based on credit rate. If the certificate

MCC, you can figure the credit on only part of

finance agency for information about the availa-

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

the interest you paid. To find the amount to enter

bility of MCCs in your area.

allowed cannot be more than $2,000.

on line 1, multiply the total interest you paid

How to claim the credit. To claim the credit,

during the year on your mortgage by the follow-

Limit based on tax. Your credit (after apply-

complete Form 8396 and attach it to your Form

ing fraction.

ing the limit based on the credit rate) generally

cannot be more than your regular tax liability on

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

Form 1040, line 44, plus any alternative mini-

See the text for information on what expenses are eligible.

mum tax on Form 1040, line 45, minus certain

other credits. Use Form 8396 to figure this limit.

IF you are eligible to deduct . . .

THEN report the amount

on Schedule A (Form 1040) . . .

Dividing the Credit

real estate taxes

line 6.

If two or more persons (other than a married

couple filing a joint return) hold an interest in the

home mortgage interest and points reported

line 10.

home to which the MCC relates, the credit must

on Form 1098

be divided based on the interest held by each

person.

home mortgage interest not reported on Form

line 11.

1098

Example. John and his brother, George,

were issued an MCC. They used it to get a

points not reported on

line 12.

mortgage on their main home. John has a 60%

Form 1098

ownership interest in the home, and George has

a 40% ownership interest in the home. John paid

qualified mortgage insurance premiums

line 13.

$5,400 mortgage interest this year and George

paid $3,600.

Publication 530 (2007)

Page 7

Publication 530 - Tax Information For First-Time Homeowners - 2007 Page 7

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