As a homeowner, you have numerous tax benefits over your counterparts who rent. If you're a first-time buyer, you may have access to additional tax benefits if your state participates in a Mortgage Credit Certificate program. By increasing your tax credits, an MCC can effectively lower your tax obligation and increase your discretionary income. While the MCC percentage rate varies by state, local Housing Finance Agencies have issued more than 140,000 certificates since the program inception and more than 4,000 in 2011.
Each state has its own Housing Finance Agency that may administer an MCC program. Designed to help low- to moderate-income first-time homebuyers, MCCs are available during the home-buying process in conjunction with your mortgage financing. In most cases, the MCC must be initiated when you close on your loan. Currently, 16 states participate in the MCC program, including Texas, California, Colorado, Ohio, Mississippi and North Carolina.
If an MCC is available in your state, to qualify you must be a first-time homebuyer and intend to make the house you're purchasing your primary residence. You can also become eligible as a non first-time homebuyer if you're a veteran or plan to buy a property in a federally designated target area. To qualify, HFAs also set income limits near the area median income and require you to complete a homebuyer educational course.
How They Work
An MCC allows you to deduct a portion of your mortgage interest deduction and convert it into a tax credit of up to $2,000. You can still deduct any remaining mortgage interest payments on your taxes. The MCC rate, set by each state HFAs, may be between 10 and 50 percent of your mortgage interest. For example, if you paid $5,000 in mortgage interest and you have an MCC set at 20 percent, you could add a $1,000 tax credit and still deduct the remaining $4,000 in mortgage interest as an itemized deduction on your taxes.
The power of the MCC program is in its ability to reduce your taxable income dollar for dollar. To file an MCC, use IRS Tax Form 8396 and attach to Form 1040 or 1040NR. You must also deduct the MCC credit from your total mortgage interest before adding it to Schedule A of the 1040 form. The MCC does not expire as long as you use the home as your primary residence, but may be subject to tax recapture if you sell the home within nine years.
- National Council of State Housing Agencies: 2013 Mortgage Credit Certificate Program Q&A
- Colorado Housing and Finance Authority: CHFA Mortgage Credit Certificate Program (MCC)
- California Housing Finance Agency: Mortgage Credit Certificate Tax Credit Program (MCC)
- IRS: Publication 530 - Tax Information for Homeowners
Monica Dillon has more than 10 years experience in real estate sales, marketing, investing and appraising. She specializes in energy efficiency building practices and renewable energy. Dillon has been syndicated by the National Newspaper Publisher's Association. Her work has also appeared in the "Journal Of Progressive Human Services."