The Federal Tax Credits Blog

Question: How will a Mortgage Tax Credit Certificate affect my income if monthly benefit exceeds monthly tax w/holding?

We are a single income family of 5, so I claim all of my exemptions throughout the year. Consequently, my federal tax with holding is only $35 or so a month. I live in Hawaii, where my monthly benefit from a MCC would be as much as $360 a month. Would I receive $360 a month, or would I only receive an amount to cover my $35 a month in taxes that I pay now? Does MCC work like receiving early earned income credit?

Answer: The mortgage interest credit is intended to help lower-income individuals afford home ownership. If you qualify, you can claim the credit each year for part of the home mortgage interest you pay.

Who qualifies. You may be eligible for the credit if you were issued a mortgage credit certificate (MCC) from your state or local government. Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home.
This is a non refundable credit that can possibly reduce your tax liability, it is not paid out like EIC.
If you Itemize your deductions on Sch A, you can not include in the computation for the credit any amount of Mortgage Interest that is deducted on the SCH A.

See Publication 530

http://www.irs.gov/publications/p530/index.html

http://www.irs.gov/publications/p530/ar02.html#d0e1150

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