Buying a home is expensive. Mortgage credit certificates can increase the federal tax benefits that homeowners can enjoy and make the dream of owning a house more accessible for low- and moderate-income buyers. Mortgage credit certificate programs are administered by state and local Housing Finance Agencies.
How Does a Mortgage Credit Certificate Work?
A mortgage credit certificate is taken as a tax credit, not as a tax deduction. A homeowner who meets MCC eligibility requirements can receive a nonrefundable, dollar-for-dollar tax credit.
The amount of the credit is calculated by multiplying the mortgage amount by the interest rate on the loan and then multiplying by the “MCC percentage.” The Housing Finance Agency that administers the mortgage credit certificate sets that percentage.
The maximum amount that a homeowner may claim as an MCC is $2,000 per year. A homeowner who paid more than that in mortgage interest can include the rest of the interest that was paid on a tax return as an itemized deduction.
A borrower is responsible for filing the appropriate form with the Internal Revenue Service. The homeowner will continue to be eligible for an MCC for as long as the owner has a mortgage and uses the house as a principal residence.
The total value of an MCC tax credit cannot be greater than the amount the homeowner owes in federal taxes in that year. If a homeowner is eligible for an MCC tax credit that’s greater than the amount the person owes in taxes, the excess credit can be carried over and used in the next three tax years.
Are You Eligible for a Mortgage Credit Certificate?
To qualify for a mortgage credit certificate, you will have to meet income guidelines, which differ between various states and regions. You will also have to meet purchase price criteria and use the house as your primary residence. Although a large percentage of people who receive MCCs are first-time homebuyers, you don’t have to use a mortgage credit certificate to purchase your first home.
How Could You Benefit From a Mortgage Credit Certificate?
An MCC can reduce the amount you will have to pay on your mortgage each month. It may allow you to buy a house, even if you would not otherwise qualify for a mortgage.
If you qualify for an MCC and your employer automatically withholds taxes from each paycheck, you can amend your W-4 form and have less money deducted. That can allow you to keep more of your earnings each pay period and reap the benefits of an MCC on a regular basis instead of waiting to file a tax return.
