If you’re purchasing your first home, you’re probably on the hunt for first-time homebuyer programs. First of all, congratulations! This is an exciting time in your life, and the last thing you want is for the home-buying process to stress you out. But doesn’t the ultimate stress always seem to revolve around money?! That’s why we want to show you how first-time homeowners can save up to $2,000 per year with the Mortgage Credit Certificate (MCC) program.
Are You a "First-Time Homebuyer?"
We need to clarify the term “first-time homebuyer” because it’s not as simple as it sounds. If you’re genuinely buying your first home ever, then, yes, you fall into this definition. Luckily, when dealing with the Mortgage Credit Certificate Program, a few other parties can benefit from this first-time homebuyer program. Let’s look at how the government defines this term:
How to Save up to $2,000 Each Year
Now that you can benefit from the MCC’s first-time homebuyer program let’s look at how it works. As mentioned above, this is a federal program that each state manages individually. Keep in mind that some areas might offer higher benefits than others.
A Percentage of Your Mortgage Interest
To determine your benefit, the MCC program uses a percentage of the interest you pay on your mortgage as a first-time homeowner. Again, each state differs, but, in general, you can earn back anywhere from 10% to 50% of the interest you pay on your mortgage.
Let’s look at an example. Imagine that you have a $100,000 home loan with 3% interest. In your first year, that means you’ll pay $2,876 in interest. If your state offers a 50% MCC benefit, then you can claim half of that back on your taxes, meaning you’d receive $1,438 in tax credits.
A $2,000 Maximum
Note that the example above doesn’t hit $2,000. So although you can earn up to $2,000 per year, not everyone will receive that amount. On the contrary, some first-time homeowners will pay more in interest, and 50% might be more than $2,000. But, the benefit of the MCC cannot exceed $2,000 per year. Still, if you can qualify for the full amount, with a 30-year mortgage, you’re looking at $60,000 of savings!
Filing Your Taxes
So, how do you claim the benefits of this first-time homebuyer program? When you file your annual taxes, use Form 8396 to get your MCC tax credit. As a non-refundable tax credit, the MCC program can confuse those who don’t owe much tax. Don’t worry; you don’t have to manage this process on your own! If you ever need any assistance, our CPA firm is happy to help!
The MCC tax credit program is aimed at assisting those purchasing their first home. We love tax credits like these because they help people, and we’re all about helping others. But this program isn’t just about getting you into any old home. There are a few different ways to benefit from the MCC program and find a great deal on the home of your dreams.
#1 — MCC Tax Credit Program = Saving Money on Your Home
Sure there are a few other benefits, and we’ll get to those, but there’s no denying the number one, most critical perk of the MCC tax credit program: you can save a lot of money on your home’s mortgage. With this tax credit, you can claim up to $2,000 each year for the entirety of your home loan. With a 30-year mortgage, that’s $60,000! Think of all you can do with such savings.
Remember, the MCC tax credit program differs from state to state, so the full amount of credit you receive depends on where you live. For example, if you’re buying a home in Texas, you’ll look specifically at the Texas Mortgage Credit Certificate Program, the TDHCA. And, depending on which city or region of Texas you reside in, you’ll calculate your benefit from there.
#2 — Find the Best Lenders and Realtors
One of the biggest hurdles of home buying is finding decent lenders and realtors. With the MCC tax credit program, you need to work with those who know the process. This will make it a lot easier for you, but it also opens the door to specific lenders and realtors who are willing to put in the extra work to benefit their clients.
The MCC program is meant to help people. So when you have lenders and realtors who know, understand, and can assist you throughout the MCC program process, you know you have a valuable entity on your side.
#3 — Discover Other Ways to Save Money
Yes, the MCC tax credit program is a great way to save money on your first home. However, first-time homebuyers have many options for saving money! Once you start focusing on one program, you’ll begin to find others. The MCC program is almost like a door, opening up to other opportunities.
And with so many specific state-run programs, you’ll indeed find another way to cut down that price tag. With the TDHCA, for example, you can also widen your search to other first-time homebuyer programs in cities throughout the entire state of Texas. Then go wider, and search for specific regions.
#4 — Get Your Dream Home
Because you save money on your new house, first-time homebuyers can widen their search and include some dream homes. With a maximum benefit of $2,000 through the entire home loan, you can potentially increase your price point. And because so many of these programs vary from state to state, this prompts homebuyers to look outside their original boundaries, further increasing their options. For example, if you live in New Mexico and can’t benefit from the MCC tax credit program, look at the TDHCA to see what homes are available in Texas.
#5 — Look for a Second Home
Although the MCC tax credit program is specifically designed for first-time homebuyers, other parties are also eligible. Veterans and active military can use the MCC program, even if they aren’t buying their first home. Likewise, those buying in specific, targeted areas, or those who haven’t owned a home in three or more years, are also eligible. If you fall into these other categories, you can use the MCC tax credit program while purchasing a second home.
Taxes. If that word makes you shudder, you’re not alone! The American disdain for taxation is in our history — and our brains. But why do we hate taxes so much? Because we don’t understand them, and we, therefore, naturally reject them. In today’s blog post, we want to help you understand one aspect of filing taxes: tax credits. We specialize in the mortgage credit certificate (MCC) program, which is a tax credit, and that’s why we want to share more about how these credits can help you.
What are Tax Credits?
Let’s avoid hating tax credits — because, hey, they are a good thing! — by understanding them. First, let’s define what they are.
In essence, tax credits are tax incentives. When you receive a tax credit, you can subtract the credit from the tax you owe. Let’s say, for example, you owe $4,500 in taxes. But, you are a first-time homebuyer, so you filed for the mortgage credit certificate MCC program and received the full $2,000 tax credit. You simply subtract your $2,000 credit from the $4,500 you owe, and now you only owe $2,500.
Credits vs. Deductions
Many Americans remain confused about how tax credits differ from tax deductions. Now that you know what a tax credit does, let’s look at deductions. While credits subtract the amount of tax you owe, deductions simply reduce the amount of income you are taxed.
For example, let’s say your income is $50,000 per year. If you receive a fully applicable tax deduction of $1,000, the government can only tax you on $49,000. You often see deductions result from money spent to produce income, which is why many deductions are linked to business expenses. However, deductions can also occur due to income loss or personal expenses.
What’s most important to remember is that credits reduce tax while deductions (and exemptions) reduce taxable income.
Non-Refundable Tax Credits
Most tax credits are non-refundable. What does this mean? It means that tax credits can’t reduce your tax liability below zero. Let’s say that you owe $1,800 in taxes, and with the mortgage credit certificate MCC program, you received the maximum $2,000 tax credit. The MCC credit cannot reduce your liability below zero even though it’s more than the amount of tax owed. In this example, the government won’t owe you the $200 that remains because the credit is non-refundable.
If you are a low-income filer, you might not be able to reap the benefits of these tax credits fully. However, with the MCC program and some other tax credits, you can carry the benefit to next year. And if your income increases and you owe more tax, you can apply the benefit to that specific year.
Popular Tax Credits
Aside from the mortgage credit certificate MCC program, a tax credit for first-time homebuyers, there are many other tax credits. Some of the most popular ones include:
As you can see, there are many different types of credits to consider when filing your taxes. Even if you aren’t a first-time homebuyer working with us on the MCC program, you can certainly reach out if you have any questions about any kind of tax credits. Our online CPA can manage taxes throughout the United States, and for those filing from abroad.
So you’re a first-time homebuyer, and you’re ready to save money — that's great! Where do you start? At our CPA firm, we specialize in the Mortgage Tax Credit Certificate Program, which helps new home buyers save up to $2,000 annually on their taxes. It’s one of the many programs that assist those purchasing their first home. And although it’s a generous tax credit, not many people are aware of its benefits, nor how to apply for it.
What is the Mortgage Tax Credit Certificate?
The mortgage tax credit certificate is what you need to obtain before purchasing your home. Once you have this certificate, you are eligible for a tax credit based on the percentage of interest you pay each year on your mortgage. Yes, it sounds a little complicated, but in practice, it’s a reasonably smooth process.
A First-Time Homebuyer Tax Credit
Those who are purchasing their first homes are eligible for this tax credit. However, the definition of a “first-time homebuyer” includes a few other parties, including those who are active military or veterans. Other homebuyers who qualify are those purchasing a new home after not owning property for three years or more, and those buying a home in a specific, targeted area. So, although the program is essentially a first-time homebuyer tax credit, a few other parties qualify.
The key to the program is that you must obtain the certificate before purchasing your home. So if you qualify for the tax credit, then apply for the certification as soon as possible. There are many lenders and realtors who support the mortgage credit certificate program. Once you have your certificate and purchase your home, you can apply for the tax credit each year for the entirety of your home loan.
Mortgage Credit Certificate Tax Form
As tax season nears, it’s time to focus on the mortgage credit certificate tax form, Form 8396. You’ll use this form to claim your annual benefits. This part of the process is where the details can get a little complicated, but we’ll walk you through it.
- Step #1: Complete Form 8396
After completing the mortgage credit certificate tax form, Form 8396, it’s time to submit your taxes. Now, for those new to the mortgage credit certificate program, it’s essential to remember that the benefits vary from state-to-state. Some states allow you to claim up to 50% of the interest you’ve paid on your mortgage, while others allow just 10% or 20%. At this point, you should know how much money you’ll receive as a tax credit based on your state's program.
- Step #2: File Your Taxes
Now, regardless of whether you can claim 10% or 50% of the mortgage interest you paid, you’ll file your taxes as usual and include Form 8396. This form’s results are either carried forward to next year or used to increase your annual refund (see next step). Keep in mind that the maximum benefit you can receive is $2,000 per year.
- Step #3: Claim or Carry Your Credit Forward
This first-time homebuyer tax credit is non-refundable and a complicated item to add to your tax return every year, especially when it involves available carryovers for unused credits. If you feel confused at this point, contact us for more information — we’re always ready to help! Still, keep in mind that if you don’t owe a large enough sum on your tax return to make your credit worth it, you can always carry your credit forward and apply it to next year’s taxes.
And that’s it! The key points to remember:
Again, we’re always available to assist you with any questions!
Once you’ve obtained the mortgage tax credit certificate and purchased your home, you can start thinking about claiming your credit when tax time comes. For many people, filing your taxes can be confusing and complicated, and it only gets more difficult when adding in credits and deductions. That’s why our CPA firm wrote this mini-guide on how to claim the MCC tax credit. But if you have any doubts or questions along the way, you can always contact us!
Important: Certification First!
To start, it’s vital to remember that to take advantage of the MCC tax credit, you must obtain the mortgage tax credit certificate before you buy your house! Even if you purchased your home as early as last week, if you didn’t get the certificate first, you can't claim the MCC tax credit.
How the MCC Tax Credit Works
Next, let’s do a quick crash-course about how the MCC tax credit works. The credit you receive is a percentage of the interest you pay on your home’s mortgage each year. This percentage differs from state-to-state but usually falls between 10% and 50%. There is a dollar cap, so even if 50% of your mortgage interest is $3,000, the maximum credit you can receive is $2,000.
To learn more about the MCC tax credit, you can find additional information on our website or within other blog posts that go into more detail.
How to Claim the MCC Tax Credit on Your Return
Okay, now we get into the details! There are two essential aspects of the MCC tax credit and its filing process:
To officially claim your tax credit, you’ll use Form 8396 — the Mortgage Interest Credit tax form. When finished with this form, the results are either carried forward or used to increase your refund when you file Form 1040 — U.S. Individual Income Tax Return. The tax credit can increase your refund by up to $2,000 each year for the entire home loan, or it can carry forward to next year (see below). As long as you’re paying mortgage interest, you can claim the MCC tax credit!
Non-Refundable Tax Credit
Sounds easy enough, right? Well, yes and no. You see, the MCC tax credit is a 'non-refundable tax credit,' which is a complicated item to add to your tax returns, especially when it involves available carryovers for unused credits.
What’s the difference between refundable and non-refundable tax credits? With refundable tax credits — even if your tax liability is $0 — you still receive the full amount of the tax credit in the form of a refund. However, with non-refundable tax credits, you can only use the credit to bring your tax liability down to $0.
What does this mean? After your deductions and credits, let’s say you owe little to no income tax. If that’s the case, the mortgage credit certificate may not be beneficial to you. So in a low-income year, it’s better to "carry forward" your MCC tax credit and apply it next year.
Get Help When Needed
Depending on your state’s situation, you can save a lot of money using the MCC tax credit. So, if filing feels too complicated, don’t hesitate to ask for help. Our CPA firm is available year-round for assistance with any tax-related issues. We e-file in all 50 states, and our fixed annual fee is just $175, with a typical preparation time of only seven days. We can help anyone in any state, even expats abroad! A secure share-file upload is available, and authorization signatures by text or email are accepted.
Of course, there are other CPA firms out there, too. You certainly don’t have to use us, but don’t miss out on using CPA firms over online services like Turbo Tax. We wrote an entire blog about the benefits of accountants.