Tax Credits:

What is the Mortgage Interest Credit?

Under special state and local programs, you may obtain a mortgage credit certification. This is a governmental program to provide taxpayers with financing to help them buy a principal residence. This certificate must be used in regards to the purchase, rehabilitation or home improvement of your main home.

If your mortgage is equal to or less than the amount of the loan shown on your mortgage credit certificate (MCC), use Form 8396, Mortgage Interest Credit, to calculate the rate of this credit by multiplying the certified credit rate on your MCC by all of the interest you paid on your mortgage that year. If your mortgage is more than the amount of the loan shown on your MCC, you multiply the certified credit by only the interest allocated to the loan on your MCC. Should your credit rate be more than 20%, you may only claim up to $2,000 as credit on your tax return.

If your allowable credit is more than your tax liability reduced by certain credits, you may carry the remaining unused portion forward for the next three tax years or until it has been used. However, if you are subject to the $2,000 limit due to the fact that you have a credit rate of over 20%, any amount over $2,000 may not be carried forward.

If you choose to itemize your deductions using Schedule A instead of taking the standard deduction for your filing status, you must reduce your home mortgage interest deduction by the amount on line 3 of Form 8396.