{{unref, date=July 2018 In the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

, a Mortgage Credit Certificate (more commonly referred to as MCC) is a

certificate Certificate may refer to: * Birth certificate * Marriage certificate * Death certificate * Gift certificate * Certificate of authenticity, a document or seal certifying the authenticity of something * Certificate of deposit, or CD, a financial pro ...

issued by certain

state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States * ''Our S ...

or local

government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...

s that allows a taxpayer to claim a

tax credit A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or a form of state "disc ...

for some portion of the

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...

interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...

paid during a given tax year.

Uses

The MCC program is designed to help first-time homebuyers offset a portion of their mortgage interest on a new mortgage as a way to help homebuyers qualify for a loan. Because it is a tax credit and not a

tax deduction Tax deduction is a reduction of income that is able to be taxed and is commonly a result of expenses, particularly those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and tax credits. T ...

, mortgage lenders will often use the estimated amount of the credit on a monthly basis as additional

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. For ...

to help the potential borrower qualify for the loan.

Qualifications & example

Generally speaking, homebuyers who wish to obtain an MCC must meet certain minimum guidelines: # Buyers must not have lived in a home that they owned in the previous three years. # Buyers must meet income and purchase price restrictions. # Buyers must intend to use the new home as a primary residence. Some of these restrictions may be waived for certain circumstances. For example, following a natural disaster, state or local governments may raise or remove the income limits for affected municipalities temporarily to help spur redevelopment. The MCC Credit can be used with Conventional/Conforming, FHA,

USDA The United States Department of Agriculture (USDA) is the federal executive department responsible for developing and executing federal laws related to farming, forestry, rural economic development, and food. It aims to meet the needs of com ...

and VA home loans. These credits can help a homebuyer qualify for a little "bigger" (more expensive)home. 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. The amount of mortgage credit allowed varies depending on the state or local government that issues the certificates, but is capped at a maximum of $2000 per year if your State's rate is over 20%,by the

IRS The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...

. As an example, if a homebuyer were to receive an MCC that offers a 30% credit on a $200,000 loan for 30 years with a rate of 6%, the allowable tax credit would be figured as follows (all numbers rounded): * Mortgage Interest Paid (1st Year): $11,933 * x MCC Credit: 30% * = Total Credit: $3579 Because the total credit in this example exceeds the IRS limit of $2000, the homebuyer would report a $2000 credit on their tax return. The buyer may continue to receive a tax credit for as long as they live in the home and retain the mortgage.

References

External links

IRS Publication 530, Tax Information for First-Time Homebuyers
Mortgage industry of the United States