You may receive the complete MCC tax credit saving annually at the time you file your tax return or monthly by adjusting your federal income tax withholding by filing a revised W-4 with your employer. By filing a revised W-4, the number of exemptions will increase, reducing the amount of taxes withheld and increasing your disposable net income (see below for additional information).
Using the Basic MCC Example, during the first year, you would be entitled to a tax credit of $2,000. Based upon such an entitlement, you would be able to file in advance a revised W-4 withholding form taking into consideration this tax credit and have approximately $166.67 per month in additional disposable income. ($2,000/12 = $166.67).
Taxpayers who file itemized returns may take a deduction for their mortgage interest paid each year, less the amount equal to the tax credit taken. (In the Basic MCC Example, the interest deduction would be $6,000 less $2,000, or $4,000). To see an example of a completed IRS 1040 with an MCC, go to Completed Form 1040 Example.
In any event, when you file taxes each year, you must fill out IRS form 8396 (see IRS Forms) and attach a copy of your MCC with your filed taxes. For more information on how to claim your MCC on IRS form 8396, refer to the Mortgage Interest Credit section of this IRS publication.
If you choose to revise your W-4, click here, for some general guidelines.
This is not intended to be a full explanation, or an assurance that such information will guarantee compliance with the tax laws. We encourage the homebuyer to contact their tax advisor or employer to help them with the necessary tax forms and, if they so choose, to properly adjust their tax withholding.