Tax Credit Programs
The $8,000 first-time homebuyer tax credit from the Internal Revenue Service (IRS) has expired. It was great while it lasted, but for now it is a thing of the past.
Even though you missed out on the $8,000 tax credit, many state and local governments offer the Mortgage Credit Certificate (MCC) program. The MCC is also a homeownership tax credit program from the IRS and it may be available in the area you want to buy. The listing of states on the left side of this page offer the program statewide. In addition, many cities and counties throughout the United States also offer the program.
Mortgage Credit Certificate (MCC)
The Mortgage Credit Certificate (MCC) program provides eligible borrowers a dollar-for-dollar tax credit which lowers the amount of federal taxes they are required to pay to the IRS. An MCC is an on-going federal tax credit that can continue year after year for as long as you retain the loan and occupy the home as your primary residence.
Amount of the MCC Tax Credit
The amount of the MCC tax credit is based on a percentage of the amount of mortgage interest you pay on the first mortgage loan. The exact percentage of first mortgage interest you can claim is determined by the state, county or city that administers the program for your area.
Here is an example of how the MCC tax credit is calculated assuming the agency administering the MCC program set the percentage at 20%, the loan amount is $200,000, and the interest rate is 5.00%:
$200,000 x .05=$10,000 (annual interest)
$10,000 x .20=$2,000 (annual tax credit)
In this exanple the MCC holder would pay $2,000 less in federal taxes, assuming they had at least $2,000 in total federal tax liability.
To qualify and to claim the MCC tax credit, the borrower or co-borrowers typically must:
- Be a first-time buyer (unless purchasing in a designated target area)
- Meet the applicable income limits adjusted for household size and county
- Purchase an eligible home that meets the purchase price limits
- Purchase a property in the MCC administrator's program area
- Continue to occupy the home as their primary residence
- Must correctly claim the mortgage credit certificate on their federal tax return each tax year
Claiming the MCC Tax Credit
MCC holders claim the federal tax credit when they file their annual taxes. The annual tax may continue to be claimed year after year as long as the MCC holder keeps the same loan and owns and occupies the home as their primary residence. Some MCC administrators allow the credit to be reissued when the homeowner refinances. while other programs do not reissue the credit when the MCC holder refinances.
Compatibility of the MCC Program
An MCC can be used with a variety of loan types including an FHA, VA, USDA, and conventional home loan programs. An MCC may not be combined with a Mortgage Revenue Bond (State Bond) loan from a housing finance agency or a loan from a state VA loan program.
Accessing the MCC Program
To see if the MCC program is available in your state see if for your state's name is listed on the left of this page. If not, you may also inquire with your local county or city government housing agency to see if the program is available to you locally.
MCC - Helpful Hints
Don't be surprised if your MCC during the first year doesn't get you a big fat tax break. To get the maximum amount of credit you need to pay your mortgage the entire year. The earlier in the year you buy your home, the more benefit you will get that first year. Don't worry - the following year you will get the full amount of the credit.
It is also helpful to know that you still get to claim the rest of your mortgage interest (the portion of interest not claimed as a credit) as a tax deduction just like normal.
Lastly, if you can't use the full amount of the MCC tax credit one year, you can carry it over for three years.
Other restricitons and rules apply for the MCC program so you need to check with your state or local program administrator for additional program details and requirements.