Mcc credit

[Tasha136]

Hi,

When I add My MCC credit of 40%, my refund does not increase by the full $2000. Why? My mortgage interest was $27,000 and my tax liability is still $18,000. Why am I not receiving the full 2000 credit.

[AmyC]

Yes,  the MCC requires a trade-off according to Form 8396. Your $27,000 mortgage interest is required to be reduced by the amount mortgage interest credit. In your case,$2k. This changes your sch A mortgage interest to $25k. This has some effect on taxable income.

Example:

Pretend you are in the 22% tax bracket and lose $2,000 of deductions that means $440 less refund.

$2k credit added -440 lost from the increased income = $1560 increase in refund.

Depending on your tax bracket, the jump is more noticeable.