The Breeze in Raleigh Real Estate

Mortgage Credit Certificate (MCC)

What are the terms?

Home buyers who meet our qualifying income requirements, sales price, and first-time home buyer guidelines may be eligible for a Mortgage Credit Certificate (MCC). This federal tax credit was authorized by Congress to assist home buyers with moderate and low incomes.

While all homeowners can claim an itemized tax deduction for mortgage interest, you can go a step further with an MCC. An MCC reduces your tax liability, dollar-for-dollar, by a percentage of the mortgage interest you pay.

If you qualify for an MCC, you will be able to claim 20% of the interest you pay on your mortgage as a credit on your federal income taxes. You can save up to $2,000 per year on your federal taxes, money that can be put toward your mortgage payment.

The MCC can be combined with the new $8,000 federal tax credit if you are eligible until that credit expires in December 2009.

An MCC can be used with almost any type of mortgage, including adjustable rate mortgages. However, it cannot be used with the Agency’s FirstHome Mortgage.

Each lender sets the terms of the mortgage. This includes the interest rate, down payment, underwriting criteria, discount points, and closing costs. While we issue MCCs to qualified buyers, we do not act as a lender. MCCs are offered subject to availability of funds. Contact one of our participating lenders to initiate the process.

How does it work?

Suppose you qualify for an MCC and obtain a 30-year, 6.5% fixed-rate mortgage of $97,000. The first year’s interest payment is approximately $6,273. The MCC allows you to take a federal income tax credit of $1,255 ($6,273 x 20%) for that year.

If your federal income tax liability is $1,255 or more after you have taken all other credits and deductions, you receive the entire benefit of the MCC tax credit – $1,255. In figuring your taxes, you also claim a deduction for the remaining 80% of your mortgage interest.

If your federal income tax liability is less than $1,255 – $800, for example – your tax is reduced by only $800 that year. However, you can claim the remaining credit on tax returns for the next three years, if your tax liability increases.

You can receive an immediate benefit from your MCC tax credit by filing a revised W-4 (Employee’s Withholding Allowance Certificate) with your employer. In this example, your federal tax would be reduced by $105 a month ($1,255 ÷ 12). The extra $105 increases your take-home pay and helps make your house payments affordable