If you’re hoping to buy a house this year, utilizing the MCC tax credit program is an excellent idea. As accountants, our CPA firm serves clients across the nation, many of whom are first-time homebuyers looking to save money on such a purchase. We always steer them in the direction of the MCC tax credit because it works so well. And after brushing up on some 2021 housing market predictions, many new homeowners will rely on these types of programs.
The 2020 Housing Market and 2021 Predictions
Last week, we published an article answering the question we always get: Should I buy a house this year? It seems that once the clock strikes midnight on New Year's Eve, people are thinking about homeownership and wondering if this is the year to take the plunge. As we always tell them, what matters most is your personal finances. Unless you’re financially ready to buy a house, it’s best to wait. The MCC tax credit program can help make a home more affordable; however, sometimes housing market trends can get in the way.
2020 Housing Market Trends
To say the least, 2020 was an odd year. At the start, the housing market was running its typical course. But once the pandemic hit, many people transitioned to remote work and wanted to relocate out of big cities. Supply was high, but demand snowballed. As a result, housing prices increased, but we also saw record-low mortgage rates. Relocating to smaller, more affordable cities was already a trend at the beginning of 2020, but the pandemic influenced it even more.
2021 Housing Market Predictions
Now, what about 2021? Experts predict that the surge in demand in 2020 will lower supply and increase housing prices earlier than in a typical year. Some say that the average cost of buying a house will increase by up to 9%. Unfortunately, this prediction means that those who are buying their first home, or those from lower-income households, will have more of a challenge entering the housing market. This impact makes it even more critical for first-time homeowners to use money-saving programs like the MCC tax credit.
What is the MCC Tax Credit?
We explore this topic in-depth throughout our website, but it’s worth giving a little summary here, as well. The MCC tax credit is a credit that first-time homeowners can receive annually throughout their home loan. The amount you can make is a percentage of the interest you pay on your mortgage, with a yearly cap of $2,000. So, if you have a 30-year loan, that means you can save up to $60,000 on your home.
How to Qualify for the MCC Tax Credit
To qualify for this tax credit, you must be a “first-time homeowner” as defined by the Finance Housing Agency. They use four categories:
If you fall into any of these categories, then you can qualify for the MCC tax credit. Every state has a different approach, so those in New York might receive more credit than their best friend in a different state, or vice versa. A previous blog post of ours dives into what states offer the MCC tax credit and other helpful homebuyer programs.
How to Calculate Your Tax Credit
Once you know that you qualify for the MCC tax credit, it’s time to organize your paperwork. Before you buy your house, you must work with your lender and real estate agent to complete all the necessary paperwork to obtain the MCC mortgage credit certificate. Without this certificate, you cannot receive the tax credit! Ensure that your lender and agent are MCC-friendly — it will save you a big headache later on.
To calculate your credit, you’ll need to determine what percentage to use. You’ll work with your state’s MCC tax credit program provider. For example, in Texas, residents obtain their rate from the Texas Department of Housing and Community Affairs (TDHCA MCC). Then, when it comes time to file your taxes, you’ll use a tax form to determine how much interest you paid on your mortgage. Here in Pennsylvania, we use the PHFA 1098, but you’ll need to use the one from your state.
For your taxes and to calculate your credit, you’ll need to gather:
Then you can start your calculation. Here’s an example:
Loan Amount – $100,000
Interest Rate – 3.0%
Total Mortgage Interest Paid – $2,876
50% Rate of Mortgage Interest Paid – $1,438
Full Credit Earned – $1,438
So, if you have a home loan of $100,000 with a 3% interest rate, then you’d pay $2,876 annually in interest on your mortgage. If you qualify for a 50% MCC tax credit rate, then you’d receive $1,438 as a non-refundable tax credit.
MCC Tax Credit in 2021
The MCC tax credit is an excellent tool in any year. As long as you’re a homebuyer who falls into one of the “first-time homeowner” categories, you save money on your home purchase. But with high-price home predictions on the horizon for 2021, the MCC tax credit program is even more desirable. For many, it could be the trick that allow you to buy your home. If you ever have any questions about the MCC tax credit or any tax inquiries, please reach out to us! We love helping people save money on their dream homes.
The leap from renting to owning is an exciting one, which leaves many first-time homeowners wondering if (and when) they should buy a house. As we turn our calendars to 2021 — and with so much activity within the housing market — is this year to take the plunge? You’re not alone if you’re contemplating this question. As a CPA firm, we work closely with clients navigating the MCC tax credit (a first-time homeowner perk), so we’re here to help you make the right decision.
The Difference Between Renting and Buying
Let’s start with the basics. There are advantages to both renting and owning, so it’s essential to consider the differences before becoming a first-time homeowner.
As a renter, you sign a lease, pay your rent and utilities, and call it a month. Maybe you cringe every calendar turn knowing that your money isn’t going towards an investment of your own, but not having to worry about other expenses is an advantage. If appliances break or there are plumbing issues, the homeowner is who typically handles those expenses.
Take the roof, for example. Roofs need replacement every 20-25 years and would probably cost around $5 per square foot. That’s a significant expense that renters don’t need to pay. And the roof is just one example of regular maintenance. Other routine maintenance includes chimney cleaning, exterior and interior painting, upgrading appliances, maintaining HVAC systems, yard maintenance, plumbing, and more. All of that adds up.
As a homeowner, you have to worry about those extra maintenance expenses, plus taxes, fees, insurance, and more. The advantage here is that your money is investing in something that will most likely appreciate. On average, homes appreciate at an annual rate of 3-5% nationally. So, if you buy a home for $150,000 and maintain it well, in ten years, it could be worth about $225,000.
Because you’re paying for upkeep and maintenance, as mentioned above, that appreciation helps fuel those costs. But specific neighborhoods, cities, regions, or even events can produce higher rates. Consider the tech boom, which caused lasting housing value effects on areas like the San Francisco Bay Area and Seattle. Over the past ten years, San Francisco’s average annual appreciation rate has been closer to 7%, whereas Seattle has been about 6.3%. Both are above the national average.
What’s the Best Time to Buy a House?
Although there isn’t any magic calculation on the exact time to buy a house as a first-time homeowner (or, really, any homeowner), there are some trends that can help you decide. To summarize a previous blog post of ours, late summer or early fall tend to be ideal times to buy a house. After the rush of the summer, housing inventory is still high, which keeps prices at bay. Once that inventory shrinks, though, prices go up.
But, buying a house is less about the perfect price and more about when it’s right for you. So as you enter 2021 with dream homes on your mind, consider if it’s right for you financially. Do you have enough savings for a downpayment? Is your credit score high enough to get a reasonable interest rate? Is this your first home? All these questions are critical to consider before diving into homeownership.
First-Time Homeowner Perks
If you're financially ready to buy a house, then any year is an excellent year to do so! And if you’re a first-time homeowner, you can save more money on your significant purchase. As mentioned above, we specialize in the MCC tax credit. Our CPA firm is eagerly anticipating tax day 2021, so we’re already helping our clients get their paperwork in order. If you’re a first-time homebuyer, perhaps some of these perks can help you, too.
MCC Tax Credit
Our website has all the information you need to know about the MCC tax credit, so we’ll sum it up here quickly. This tax credit is for those who fit the definition of a “first-time homeowner.” You either need to be purchasing your first home ever, buying your first home since at least three years ago, looking in designated neighborhoods that need a housing boost, or be retired or active in the military. If you fall into any of those categories, then you can benefit from the MCC tax credit.
First-time homeowners can earn up to $2,000 annually throughout their entire home loan. For a 30-year loan, that’s saving $60,000. It all depends on where you live and what percentage you can claim on the interest you pay on your home loan. Every state is different, so those in Texas will receive their rate from the Texas Department of Housing and Community Affairs (TDHCA MCC). But when it comes time to file your taxes, you can use any CPA firm.
Here in Pennsylvania, we serve clients across the nation and abroad. For our local first-time homeowners, they’ll use other forms like the PHFA 1098. This form tells you how much interest you paid that year on your mortgage. We use the PHFA 1098, yes, but those working with the TDHCA MCC in Texas will use their state’s form. Universally, everyone will also need to file Form 8396, which you can find on our website.
Mortgage Interest Deduction
Unlike the MCC Tax Credit, any home buyer can benefit from a deduction. The Mortgage Interest Deduction reduces the interest that homeowners pay on their loans from their taxable income. You can use this perk on either your home purchase or home upgrades, so it’s more versatile than some tax benefits.
All states have their programs to help homebuyers, whether it’s your first home or not. In Texas, for example, there’s the Texas State Affordable Housing Corporation, which allows buyers to deduct a large portion of their interest. You can combine this perk with other tax breaks related to down payments and closing costs. Another example is in the city of Oakland, CA, which provides a Mortgage Assistance Program. This program provides funds to reduce closing costs and down payments.
Home Buying in 2021
So, back to the question: Is 2021 the year to buy a house? If you’re financially and personally ready to take on the responsibilities and enjoyment of homeowning, then yes, of course, it’s a great year to buy a house. It doesn’t matter when as much as it matters if you are ready.
However, because 2020 was such a unique year, keep your eye on the 2021 housing market. Last year, many people relocated due to the pandemic, which increased demand in an already large supply year. Housing prices grew, but mortgages fell to a record low. Many experts predict that housing sales will increase this year and prices will rise over 5% — some saying up to 10%. Further, due to the pandemic, construction companies face challenges in providing new builds. So, eventually, supply will go down, and prices may increase even more.
This situation will make it hard for low-income earners to enter the market and essential for first-time homeowners to take advantage of those perks! If you plan to buy in 2021, consider looking around earlier in the year. Ignore the late-summer-early-fall trends, as this year will not follow the usual course. When you find the home that’s right for you financially and personally, then that’s the perfect time to buy a house.
As we enter January and start thinking about tax day 2021, our team would like to wish our readers a very Happy New Year! As you return to work this week and start putting away your holiday decor, we know that the last thing you want to think about is your taxes. We also know that our excitement for tax day is probably not that relatable! But here’s the thing: we do this for a living, and we love it.
We want to use our enthusiasm and encourage you to get an early start on your taxes this year. If you’ve ever waited until the last minute on April 15th to start organizing your receipts, then you know that panicked feeling. Aside from the stress, procrastinating on your taxes can cost you money. You may forget about — or not have time to research — deductions or credits that could save you big bucks! So, is it too early to start thinking about tax day 2021? We think not, and here’s why.
Tax Day 2021 is Only 98 Days Away!
Is that all?! Ninety-eight days might seem like a long time, but that’s just over three months. At the rate time seems to fly by, April will be on our doorsteps before we know it. For most, three months to coordinate your taxes is plenty of time. But for those with a more complicated tax situation, you may need that time to get your paperwork in order.
Complicated Tax Situations and Tax System
If you’re a single filer with one income and no dependents, no big purchases, and nothing out of the ordinary, then you’re tax filing is fairly simple. But add any of the following to that list, and you complicate things just enough to require more preparation:
This list is non-exhaustive, as there are plenty of other situations that can make your taxes complicated. But, sometimes, that isn’t a bad thing. If you have children or dependents, then that’s a tax break (i.e., money). Some of the above allow you to take advantage of tax credits or tax deductions.
But, most importantly, it’s our tax system that makes filing complicated. In the United States, we conduct our social policy and tax expenditures through annual tax per household (not individual). This distinction alone makes our system more complicated than in some other countries. Further, individuals (families) must file the paperwork themselves, not their employers. If done incorrectly, you can either lose money or receive a fine. For these reasons, even lower-income earners opt for professional help come tax day.
Finding the Best CPA
Another reason to anticipate tax day 2021 is to snag a good, trustworthy CPA. Whether you choose online or in-person, you want to start shopping around early. If you wait until April, most high-quality accountants will be too busy to squeeze you in. Luckily, it’s 2021, and finding a CPA is easier than it’s ever been! For example, our firm is in Pennsylvania, but we serve clients from across the country and even some foreign expats. Many other brick-and-mortar CPAs do the same. You don’t have to stick to your neighborhood — you can take your CPA search nationwide.
If you rely on TurboTax and H&R Block programs, starting your taxes earlier allows you to shop around for competitive prices. A long time ago, we pledged to offer quality services that fit any budget. That’s why we match TurboTax’s Deluxe package price. So for the same cost, you can get real people attuned to your specific needs. Give us a shout if you have any questions!
What Paperwork do You Need for Tax Day?
When a client presents a stack of paperwork, we get excited about it. To us, the pile is a puzzle, and we’re eager to put it together and find the best credits and deductions for your situation. This takes time. There are many details to consider before getting started, and remember that your case is unique to you, so you need someone who can help you.
To start, gather all the paperwork you need for your personal information. This data includes:
This set of important information is easy to collect. You probably know most of it by heart, but it’s smart to have it handy as you prepare for your taxes.
Income is a huge category with a lot of moving parts because everyone’s situation is different. The earlier you can start gathering this information, the better. Remember, your employer likely provides this information, so you may not have it by now. You still have 98 days, so don’t worry if you’re waiting on any tax forms!
Credits & Deductions
Tax deductions and tax credits are different, and it’s essential to understand that. At our firm, we work with clients filing with the MCC tax credit certificate program. Tax credits help you receive more money on your refund, while deductions reduce the overall amount of income on which the government can tax you. So a credit gives you money, and a deduction reduces what you owe.
The MCC tax credit is for first-time homeowners and can issue up to $2,000 annually. The savings depends on a percentage of how much interest you pay on your mortgage, and it varies from state-to-state. On average, new homeowners earn anywhere from 10% to 50% of that interest. With most tax credits, you need to file additional paperwork. To benefit from deductions and credits, starting early and using a knowledgeable accountant is wise.
Let’s look at some of the most common spending categories for credits and deductions.
If you spent money within any of the categories above, you could file for deductions that lower your income amount or receive credits. In turn, you save money. Deductions and credits are where that aforementioned social policy comes into play. You may have to pay for childcare upfront, but you can usually deduct those expenses on your annual taxes.
So, for all the reasons mentioned above, you should start thinking about tax day 2021! Yes, three months is a long time, but considering all the moving parts that can impact your filings, getting a handle on things now will help you before April 15th arrives. We live and breathe these next few months and love helping our clients save the most money on their taxes.