26 U.S.C. § 25 — Interest on certain home mortgages

(a) Allowance of credit (1) In general. Each year, you get a tax credit equal to: the certificate credit rate, multiplied by the interest you paid or accrued that year on the remaining principal of your certified mortgage debt. (2) Limitation where credit rate exceeds 20 percent. (A) In general. If your certificate credit rate is more than 20%, your credit under paragraph (1) cannot exceed $2,000 for the year. (B) Special rule where 2 or more persons hold interests in residence. If more than one person owns an interest in the home, that $2,000 cap is split among them based on their share of ownership. (b) Certificate credit rate; certified indebtedness amount (1) Certificate credit rate. This is the credit rate written on your mortgage credit certificate. (2) Certified indebtedness amount. This is the debt that (A) you took on to (i) buy your principal residence, (ii) pay for a "qualified home improvement loan" on it (as section 143(k)(4) defines that term), or (iii) pay for a "qualified rehabilitation loan" on it (as section 143(k)(5) defines that term), and (B) is written on the certificate. (c) Mortgage credit certificate; qualified mortgage credit certificate program (1) Mortgage credit certificate. This is a certificate that (A) is issued under a "qualified mortgage credit certificate program" by the state or political subdivision that has authority to issue a qualified mortgage bond to finance your principal residence; (B) is issued to you in connection with buying, rehabilitating, or improving your principal residence; (C) states the certificate credit rate and the certified indebtedness amount; and (D) is in whatever form the Secretary prescribes. (2) Qualified mortgage credit certificate program. (A) In general. This is a program that (i) a state or political subdivision sets up for a calendar year in which it is authorized to issue qualified mortgage bonds; (ii) lets the issuing authority elect, in a manner and form the Secretary prescribes, not to issue some private activity bonds it could otherwise issue that year under section 146; (iii) requires that debt certified through the certificates meet several requirements borrowed from section 143, as modified by subparagraph (B): the residence requirements in subsection (c), the 3-year requirement in subsection (d), the purchase-price requirement in subsection (e), the income requirements in subsection (f), the targeted-area requirement in subsection (h), and the other requirements in subsection (i)(1); (iv) bars issuing a certificate for a residence any of whose financing comes from a qualified mortgage bond or qualified veterans' mortgage bond; (v) unless regulations provide otherwise, is not limited to debt incurred from particular lenders; (vi) unless regulations provide otherwise, makes the certificate non-transferable; and (vii) if the issuing authority sets aside a block of certificates for one development, requires the developer to certify to the issuing authority and the homebuyer that the residence's price is no higher than it would be without a certificate. Under regulations, rules like those in section 143(a)(2)(B) and (C) apply to this subparagraph's requirements too. (B) Modifications of section 143. Under regulations the Secretary prescribes, when applying section 143 for the residence, income, and targeted-area requirements above: (i) each qualified mortgage credit certificate program is treated as its own bond issue; (ii) for each certificate, multiply the certified indebtedness amount by the certificate credit rate — that product is treated as proceeds of the issue, and the sum of all such products is treated as the issue's total proceeds; and (iii) section 143(d)(1) is applied by substituting "100 percent" for "95 percent or more" — unless the issuing authority submits a plan the Secretary is satisfied will meet the 95% requirement of section 143(d)(1). (d) Determination of certificate credit rate (1) In general. The certificate credit rate on any mortgage credit certificate must be at least 10% and no more than 50%. (2) Aggregate limit on certificate credit rates. (A) In general. For each qualified mortgage credit certificate program, add up (certified indebtedness amount × certificate credit rate) for every certificate issued under that program — the total cannot exceed 25% of the "nonissued bond amount." (B) Nonissued bond amount. This is the amount of qualified mortgage bonds the issuing authority is otherwise authorized to issue but elects not to issue, under subsection (c)(2)(A)(ii). (e) Special rules and definitions (1) Carryforward of unused credit. (A) In general. If your allowable credit under subsection (a) for a year is more than the applicable tax limit for that year, the excess carries forward to each of the next 3 taxable years and, subject to subparagraph (B), is added to your credit under subsection (a) for that later year. (B) Limitation. The unused credit you can use in a later year cannot exceed that year's applicable tax limit, minus (i) that year's own credit under subsection (a) figured without this carryforward rule, and (ii) any carryforward amounts from earlier years already applied to that year. (C) Applicable tax limit. This means the limit set by section 26(a) for the year, reduced by the credits allowed under this subpart other than this section and sections 23 and 25D. (2) Indebtedness not treated as certified where certain requirements not in fact met. Subsection (a) does not apply to any indebtedness if the requirements of section 143 subsections (c)(1), (d), (e), (f), and (i), and clauses (iv), (v), and (vii) of subsection (c)(2)(A) of this section, were not actually met for that debt. Unless regulations provide otherwise, those requirements are treated as met if there is a certification, under penalty of perjury, that they are met. (3) Period for which certificate in effect. (A) In general. Except as subparagraph (B) provides, a mortgage credit certificate is treated as in effect for interest attributable to the period beginning on the date it is issued and ending on the earlier of the date the certificate is revoked by the issuing authority, or the date the residence stops being the principal residence of the individual the certificate relates to. (B) Certificate invalid unless indebtedness incurred within certain period. A certificate does not apply to indebtedness incurred after the close of the second calendar year following the calendar year for which the issuing authority made the election under subsection (c)(2)(A)(ii). (C) Notice to Secretary when certificate revoked. Any issuing authority that revokes a mortgage credit certificate must notify the Secretary of the revocation, at the time and in the manner the Secretary prescribes by regulations. (4) Reissuance of mortgage credit certificates. The Secretary may prescribe regulations letting a mortgage credit certificate program's administrator reissue a certificate that specifies a certified mortgage indebtedness replacing the outstanding balance on the original certificate, to the same taxpayer the original certificate was issued to — under terms and conditions the Secretary determines are necessary to make sure the credit allowable under subsection (a) for the reissued certificate is never more than what would have been allowable under the original certificate, for any taxable year after the reissuance. (5) Public notice that certificates will be issued. At least 90 days before any mortgage credit certificate is issued under a qualified mortgage credit certificate program, the issuing authority must give reasonable public notice of (A) the certificate's eligibility requirements, (B) how the certificates will be issued, and (C) other information the Secretary may require. (6) Interest paid or accrued to related persons. No credit is allowed under subsection (a) for interest paid or accrued to a person who is a "related person" to the taxpayer, within the meaning of section 144(a)(3)(A). (7) Principal residence. "Principal residence" has the same meaning it has in section 121. (8) Qualified rehabilitation and home improvement. (A) Qualified rehabilitation. This has the meaning given by section 143(k)(5)(B). (B) Qualified home improvement. This means an alteration, repair, or improvement described in section 143(k)(4). (9) Qualified mortgage bond. This has the meaning given by section 143(a)(1). (10) Manufactured housing. For this section, "single family residence" includes a manufactured home with at least 400 square feet of living space and a width of more than 102 inches, that is normally used at a fixed location — but this does not mean such a home is taken into account under section 143. (f) Reduction in aggregate amount of qualified mortgage bonds which may be issued where certain requirements not met (1) In general. If, for any calendar year, a mortgage credit certificate program that satisfies procedural volume-limitation requirements the Secretary prescribes still fails to meet subsection (d)(2)'s requirements, those requirements are treated as satisfied for that program's certified indebtedness anyway — but the state's applicable ceiling under section 146(d) is reduced, for the following calendar year, by 1.25 times the "correction amount" for that failure. (2) Correction amount. (A) In general. The "correction amount" equals the "excess credit amount" divided by 0.25. (B) Excess credit amount. (i) In general. This is the excess of the program's actual "credit amount" over what the credit amount would have been had the program met subsection (d)(2)'s requirements. (ii) Credit amount. This means the sum of the products described in subsection (d)(2)(A)(i) and (ii). (3) Special rule for States having constitutional home rule cities. If a state has a constitutional home rule city (as section 146(d)(3)(C) defines it), the ceiling reduction goes to whichever of the city, or the rest of the state, actually caused the failure. (4) Exception where certification program. This subsection does not apply if there is a certification program, meeting requirements the Secretary prescribes by regulation, designed to ensure this section's requirements are met. (5) Waiver. The Secretary may waive paragraph (1) if the Secretary determines the failure had reasonable cause. (g) Reporting requirements. Anyone who makes a loan that becomes a certified indebtedness amount under a mortgage credit certificate must file a report with the Secretary containing (1) the borrower's name, address, and Social Security number; (2) the certificate's issuer, issue date, certified indebtedness amount, and certificate credit rate; and (3) other information the Secretary may require by regulations. Anyone who issues a mortgage credit certificate must also file a report showing whatever information the Secretary's regulations prescribe. Every such report must be filed at the time and in the manner the Secretary requires. (h) Regulations; contracts. (1) Regulations. The Secretary must prescribe regulations needed to carry out this section's purposes, including regulations that may require certificate recipients to pay a reasonable processing fee to defray the program's administrative expenses. (2) Contracts. The Secretary may contract with any person to provide services in administering this section. (i) Recapture of portion of Federal subsidy from use of mortgage credit certificates. See section 143(m) for provisions that increase your tax to recapture part of the federal subsidy from using a mortgage credit certificate.