A tax credit program passed last year by Congress to assist first-time home buyers won't work as intended because many of the beneficiaries won't have enough tax liability to take full advantage of it, according to a study released this week.

The mortgage credit certificate program was designed to help first-time buyers by allowing them to get a credit against their federal taxes for a portion of their mortgage interest. It was offered, principally by Sen. Robert J. Dole (R-Kan.), as an alternative to subsidies using tax-exempt bonds, which have been criticized as expensive and inefficient.

A tax credit, as distinct from a deduction, allows the recipient to take certain expenses directly off the taxes he must pay, thus getting dollar-for-dollar reimbursement. With a deduction, expenses may be deducted from taxable income, thus reducing tax liability, but each dollar deducted is reimbursed only by the portion of it that would have been gone in taxes.

But the new study, done for the Council of State Housing Agencies and the National Association of Home Builders, concludes that, primarily because of other deductions and credits, most low- to moderate-income families wouldn't be paying enough tax to take all of the credit.

And because the mortgage credit is "nonrefundable" -- meaning that it can be used to reduce tax liability to zero but not to the point where the taxpayer actually gets money from the government -- it is possible that many lower-income families could not get the full benefit to which they were otherwise entitled, the study found. This is true even though unused portions can be carried forward for up to three years.

"The conclusion is that in many garden-variety situations, the first-time home buyer will not have sufficient tax liability" to absorb the credit, said Emil Sunley, who along with Mary Walz, wrote the report. Sunley, a former Treasury official, and Walz are with the accounting firm of Deloitte Haskins & Sells.

Carl Riedy of the Council of State Housing Agencies called this a "major, critical flaw" in the program that will impede it in "achieving the ultimate objective of benefiting low- and moderate-income people."

Riedy said that when the Treasury Department issues regulations -- expected in the next few weeks -- his group intends to "attempt to make the program as workable as possible so that it will be one of a number of tools" in aiding lower-income people to obtain housing.

"We are hopeful we can sit down with Treasury and with Congress and continue to improve it, based initially on the findings of this study," he said.

The study found that one-earner couples with incomes of $27,500 could generally make full use of the credit, as could single people.

But at lower incomes, or where there are two earners and children, other benefits such as the child-care credit and the special deduction designed to offset the so-called marriage penalty, tax liability is likely to be less than the credit.

The study noted that higher interest rates "exacerbate any problems" involving low tax liability. According to its calculations, a couple with a $22,000 income, split 70-30 between two earners, and the full child-care credit, could absorb 46.6 percent of the mortgage credit if their mortgage interest rate was 15 percent.

Despite the problems, Riedy said he expects that many states will try to use the program. He cited Oregon, which has a state limit on the volume of tax-exempt bonds it can issue, as one likely candidate. Another was economically troubled Michigan, which has been casting about for any device that would assist home buyers there.

The problems with the mortgage credits would be largely eliminated if the credit were refundable, but officials of the housing agency group and the homebuilders agreed that in the current fiscal climate any sort of additional direct expense to the government would be very difficult to sell to Congress.