Publication 530 - Tax Information For First-Time Homeowners

Table 3. Adjusted Basis

purposes of the Federal Truth in Lending Act.

The principal of the hypothetical mortgage is the

This table lists examples of some items that generally will increase or decrease

remaining outstanding balance of the certified

your basis in your home. It is not intended to be all-inclusive.

mortgage indebtedness shown on the old MCC.

You must choose one method and use

Increases to Basis

Decreases to Basis

it consistently beginning with the first

tax year for which you claim the credit

CAUTION

Improvements:

•

based on the new MCC.

Insurance or other reimbursement for

•

Putting an addition on your home

casualty losses

As part of your tax records, you should

•

Replacing an entire roof

Deductible casualty loss not covered

TIP

keep your old MCC and the schedule

•

Paving your driveway

by insurance

of payments for your old mortgage.

•

Installing central air conditioning

Payments received for easement or

•

right-of-way granted

Rewiring your home

•

Depreciation allowed or allowable if

home is used for business or rental

District of Columbia

Assessments for local improvements

purposes

•

(see Assessments for local benefits, under

Value of subsidy for energy

First-Time Homebuyer

What You Can and Cannot Deduct)

conservation measure excluded from

Credit

income

Amounts spent to restore damaged property

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

up to $5,000 ($2,500 if married filing separately)

The MCC shows a credit rate of 25% and a

the new loan. The amount of credit you can

if you buy a main home in the District of Colum-

certified indebtedness amount of $130,000. The

claim on the new loan may change. Table 2

bia. You must reduce the basis of your home by

loan amount (mortgage) on their home is

summarizes how to figure your credit if you refi-

the amount of the tentative credit.

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

nance your original mortgage loan.

The credit is not allowed if you acquired your

cause the credit rate is more than 20%.

An issuer may reissue an MCC after you

home from certain related persons or by gift or

John figures the credit by multiplying the

refinance your mortgage. If you did not get a

inheritance.

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

new MCC, you may want to contact the state or

You qualify for the credit if you (and your

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

local housing finance agency that issued your

spouse if you are married) did not have an own-

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

original MCC for information about whether you

ership interest in a main home in the District of

60%).

can get a reissued MCC.

Columbia for at least 1 year before buying the

George figures the credit by multiplying the

new home. Individuals with modified adjusted

Year of refinancing. In the year of refinanc-

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

ing, add the applicable amount of interest paid

gross income of $90,000 or more ($130,000 or

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

more in the case of a joint return) cannot claim

on the old mortgage and the applicable amount

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

the credit. Individuals with modified adjusted

of interest paid on the new mortgage, and enter

40%).

the total on Form 8396, line 1.

gross income between $70,000 and $90,000

If your new MCC has a credit rate different

(between $110,000 and $130,000 in the case of

a joint return) can claim only a reduced credit.

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

Carryforward

statement to Form 8396. The statement must

Use Form 8859, District of Columbia

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

If your allowable credit is reduced because of

First-Time Homebuyer Credit, to figure your

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

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

credit. See the form and its instructions for more

It must show a separate calculation for the part

ward the unused portion of the credit to the next

information.

of the year when the new MCC was in effect.

3 years or until used, whichever comes first.

Combine the amounts from both calculations for

Example. You receive a mortgage credit

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

Basis

write “See attached” on the dotted line.

certificate from State X. This year, your regular

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

New MCC cannot increase your credit. The

minimum tax, and your mortgage interest credit

Basis is your starting point for figuring a gain or

credit that you claim with your new MCC cannot

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

loss if you later sell your home, or for figuring

be more than the credit that you could have

used mortgage interest credit for this year is

depreciation if you later use part of your home

claimed with your old MCC.

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

for business purposes or for rent.

In most cases, the agency that issues your

this amount to the next 3 years or until used,

While you own your home, you may add

new MCC will make sure that it does not in-

whichever comes first.

certain items to your basis. You may subtract

crease your credit. However, if either your old

certain other items from your basis. These items

loan or your new loan has a variable (adjustable)

Credit rate more than 20%. If you are subject

are called adjustments to basis and are ex-

interest rate, you will need to check this yourself.

to the $2,000 limit because your certificate credit

plained later under Adjusted Basis.

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

rate is more than 20%, you cannot carry forward

It is important that you understand these

the credit you could have claimed using the old

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

terms when you first acquire your home be-

MCC.

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

cause you must keep track of your basis and

There are two methods for figuring the credit

adjusted basis during the period you own your

you could have claimed. Under one method, you

Example. In the earlier example under Di-

home. You also must keep records of the events

figure the actual credit that would have been

viding the Credit, John and George used the

that affect basis or adjusted basis. See Keeping

allowed. This means you use the credit rate on

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

Records, later.

the old MCC and the interest you would have

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

paid on the old loan.

$800) cannot be carried forward to future years,

Figuring Your Basis

If your old loan was a variable rate mortgage,

despite the respective tax liabilities for John and

you can use another method to determine the

George.

credit that you could have claimed. Under this

How you figure your basis depends on how you

method, you figure the credit using a payment

acquire your home. If you buy or build your

schedule of a hypothetical self-amortizing mort-

home, your cost is your basis. If you receive your

Refinancing

gage with level payments projected to the final

home as a gift, your basis is usually the same as

If you refinance your original mortgage loan on

maturity date of the old mortgage. The interest

the adjusted basis of the person who gave you

which you had been given an MCC, you must

rate of the hypothetical mortgage is the annual

the property. If you inherit your home from a

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

percentage rate (APR) of the new mortgage for

decedent, the fair market value at the date of the

Page 8

Publication 530 (2007)

Publication 530 - Tax Information For First-Time Homeowners - 2007 Page 8

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