You probably have never heard of Mortgage Credit Certificates (MCC) before, most real estate professionals don’t even know about it. As a mortgage broker in Hawaii, this is one of the best kept secrets that really shouldn’t be!
Many homebuyers wouldn’t have qulaified without this MCC program. By reducing the amount of federal income tax you pay, the Mortgage Credit Certificate (MCC) gives you more available income to qualify for a mortgage loan and assist you with house payments. Now that increase in your take-home pay can be incorporated into your mortgage application!
The IRS allows mortage interest paid annually to be taken as an itemized dedcution on their Schedule A. The benefit of the MCC is the homeowner is able to reduce dollar-for-dollar up to 20% of their yearly mortgage interest against the taxes owed to the IRS.. Stay with me now, you’re almost there. Calculate the savings, and you determine the benefits..
Loan Amount : $250,000
Interest Rate: 6%
Payment: $1,499
Now in the first year, you will pay a total of $14,916 in interest on your mortgage. Those numbers don’t change if you have a MCC or not. Now let’s assume you have a MCC.
You paid $14,916 in total mortgage interest. 20% of that number comes out to $2,983. That means if you would normally owe the IRS, let’s say, $4,297 that year, you would now owe $1,314 ($4,297-2,983) instead ! The MCC tax credit will reduce the tax liability owed to the IRS dollar-for-dollar.. The remaining mortgage interest is listed as an itemized deduction on the Schedule A.. Please note: if your tax liability is less than the credit, you will not receive a refund for the difference. The MCC tax credit is not a refundable credit, however there are benefits for the unused portion of the tax credit.. But you can carry the unused portion forward for up to 3 years to offset future income taxes, so all isn’t completely lost.
If you are eligible for the MCC, you can take advantage of the tax savings immediately or wait when you file your 1040.? It calculates into a monthly savings of $249.? Homeowners with a MCC can file a revised W-4 withholding form with their employer to reduce the amount of federal income tax withheld from their wages, which increases their take-home pay.
Most readers, right now, are wishing they heard of this MCC thing years ago. MCC program has been around since 1984.? Wrong. Congress established the MCC program 1984 to assist low and moderate income families so they could become homeowners.. To be eligible for the Mortgage Credit Certificate, a homebuyer must meet the criterias set by the program including the federal guidelines..
Not everal real estate transaction will qualify for the Mortgage Credit Certificate tax credit.. This program is typically for first-time homeowners, or those who have not had ownership interest in a principal residence at any time in the last 3 years. Investment and secondary homes are not eligible for the MCC tax credit.. Eligibility for the Mortgage Credit Certificate is subject to whether the homeowner has refinanced the mortgage.. Mortgage Credit Certificate tax credit is a subsidy, and a tax payer may have to recapture th tax if you sell the home or exceed the specified income limit.. If you are buying a home and haven’t already solicited professional tax advice, I urge you to do so. But for the curious, more tax information can be found at http://www.irs.gov/pub/irs-pdf/p17.pdf on page 259.
All-in all though, the MCC is a great benefit for anyone who qualifies. Your area might be different, so be sure to research the guidelines first if you are interested in this program. Most likely, you’re going to find information on the MCC at your local Housing, Finance, and Development Corporations. Along with the forms you’ll need, they will also have a list of participating lenders. By asking about the MCC program, you can quickly decipher which mortgage consultants work with the participating lenders in your area. Better still, go to http://loangoose.com and request more information today!
