 If you are a first-time home buyer in the state of Arizona, or have not owned a home in the last three years, you might qualify for the Mortgage Credit Certificate program. In short, the MCC tax credit allows you to receive a tax credit of 40% of your annual mortgage interest, up to $2000 annually, for as long as you live in your purchased home.
In order to help you better understand how the program works in Arizona, we've looked at your program's lead - the Pima Industrial Development Authority (IDA). Qualifying for the MCC Tax Credit in Arizona The program requirements you need to meet in order to be eligible for a Mortgage Credit Certificate in Arizona are as follows:
Additionally, there are household income limits and purchase price limits that vary by county. Individuals can find more information here or talk to their lender. How Does the MCC Mortgage Credit Certificate Arizona Work? While each state runs its own version of the program, there are similarities between many states, and Arizona is no exception. In Arizona, participants in the MCC Tax Credit program are able to reduce the amount of federal income taxes they owe each year by a predetermined percentage (40%) of their paid mortgage interest (up to $2000). Homeowners are also responsible for a one-time program fee of $500, and an annual administrative fee of $100. These fees ensure borrowers who obtain the MCC credit are serviced for the life of their loan, along with covering administrative and reporting costs. Individuals should work with a tax professional to discuss their options for obtaining the MCC tax credit, as there are different requirements for using the program if your loan is refinanced or if you sell your home within 9 years. How Much Can A Qualified Homebuyer Save? In Arizona, the mortgage credit rate percentage is 40%, or up to $2000 annually. For example, if you purchase a home for $125,000 with a 4% interest rate, you’d pay $5000 in interest your first year. $5000 x 40% MCC Credit = $2000 Tax Credit. Other Programs Available to Homebuyers in Arizona In addition to the MCC Mortgage Credit Certificate program, Arizona also offers Pima Tuscon Homebuyer’s Solution (PTHS) and the HOME Downpayment Assistance programs that can be used in conjunction with the MCC. Combining these programs can save you money on the initial down payment of your home, along with reducing your federal income tax liability. Work with your tax professional and lender to determine the best programs for you.
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 If you are a first-time home buyer in the state of Alabama, you might qualify for the Mortgage Credit Certificate program. In short, the MCC tax credit allows you to take advantage of up to $2000 of non-refundable tax credits each year for the life of your mortgage loan.
In order to help you better understand how the program works in Alabama, we've looked at your program's lead - the Alabama Housing Finance Authority (AHFA.) Qualifying for the MCC Tax Credit in Alabama There are specific guidelines you need to meet in order to be eligible for a Mortgage Credit Certificate in Alabama.
If not qualified above, those purchasing homes in specific "target" areas in Alabama may be eligible for the MCC Tax Credit. Talk to their lender to determine if you could qualify. How Does the MCC Mortgage Credit Certificate Alabama Work? While each state runs its own version of the program, there are similarities between many states, and Alabama is no exception. In Alabama, participants in the MCC Tax Credit program are able to reduce the amount of federal income taxes they owe each year by a pre-determined percentage of their paid mortgage interest. Any interest paid outside of the allowed amount can also be claimed as a deduction on the homebuyer's federal tax return. If participants would like to realize immediate savings using the program, they can update their withholdings on their W-4 form. The Alabama Mortgage Credit Certificate (Alabama MCC or Alabama first-time homebuyer program) can be used in conjunction with the state's Step-Up program or any 30-year, fixed-rate, amortizing mortgage through an approved lender. How Much Can A Qualified Homebuyer Save? In Alabama, the mortgage credit rate percentages are based on the loan amount:
Other Programs Available to Homebuyers in Alabama: In addition to the MCC Mortgage Credit Certificate program, Alabama also offers the Step Up Program, designed to help moderate-income homebuyers who can afford a house payment but need help with the down payment. This program allows homebuyers to secure a second 10-year mortgage for their down payment, in addition to their 30-year mortgage. Both mortgages are serviced by ServiSolutions and will therefore provide an easy, combined payment each month. The AHFA provides additional guidelines for the program here.  The Mortgage Tax Credit Certificate is an amazing opportunity to get up to $2,000 back per year as a tax credit for the life of your mortgage. However, there are state-by-state requirements to consider as not everyone is or can be qualified, and it varies from state to state.
MCC Tax Credit Basics The MCC Tax Credit is a credit designed for new homeowners who are getting a mortgage on their primary residence. Though there are income limits and house price limits, almost everyone can take advantage of this program as it works with FHA, VA, USDA, and conventional loans. However, not only is it state to state, it’s also lender to lender. So while it might be available in your state, your lender might not know or tell you about it as they don’t participate. In addition, there are a few things to keep in mind as while you could qualify; you might not want to take part in it. Why Obtain the MCC Tax Credit You can get as much as a $2,000 tax credit each year that you have a mortgage. This means money back on your taxes that could be as much as $60,000 on the life of the loan! Why You Might Not Obtain the MCC Tax Credit However, some variables could push you to avoid this tax credit. According to the IRS, if you meet all three of these requirements at the time of the sale of your home, then you might actually have to pay back some of the tax credit you’ve gotten (called a recapture.)
If you think you might qualify for all three of these when you sell your home, think hard about whether or not the MCC tax credit is for you as you could be paying back all of the tax credits that you earned. State-By-State Information Now, we’re going to go through each state and link to the resource you’ll need to learn more about the MCC Tax Credit for your potential future home. Note: This blog post will be updated with a basic overview and link to a longer state-by-state individual blog post as we work our way through individual deep dives. States With a State-Wide MCC Program
States Without State-Wide Programs
 How much would you like to save up to $2,000 a year in your taxes for the life of your mortgage? I hope you answered, “a lot! This, in short, is what the Mortgage Credit Certificate (MCC Tax Credit) enables you to do each year.
We’ve talked extensively about the MCC Tax credit in the past; however, today, we’re going to look at exactly what you need to do to claim the certification if you qualify as of this year (2021.) What is the MCC Tax Credit? The mortgage credit certificate allows you (a homeowner) to claim a federal income tax credit that is worth up to $2,000 per year for the life of the mortgage. You need to be a first-time buyer that qualifies under your state’s program. However, not all states issue this program, though they might have others available. One final detail - in order to get any tax benefit, you must claim the mortgage interest credit on your federal tax return every single year you own the home. How does the MCC Tax Credit Work? The MCC Tax Credit allows you to use a Mortgage Credit Certificate (MCC) to claim a free federal tax credit - the mortgage interest credit. This credit is given by your state’s Housing Finance Authority (HFA) as part of their mortgage credit certificate program. It enables you to claim up to $2000 of your mortgage payments a year as a tax credit - directly lowering what you owe in federal taxes. By lowering your taxes, it also saves you money on your home. In fact, it can save you up to $60,000 on your home over the course of the loan. However, if you don’t owe a ton of federal income taxes, then this credit might not help you by the full $2,000. In addition, you’ll also need to qualify for the credit first. How to Qualify for the MCC Tax Credit This varies greatly by the state where you plan to buy your first home. However, there are a few things that are typical for the qualification:
Keep in mind, certain states have additional qualifications as well as some caveats which can allow people who have owned a home in the past to qualify. Examples include people who haven’t owned a home in a set number of years of the active military. How to Obtain & Claim the MCC Tax Credit? Assuming that you qualify and that your state has a program, then you will apply when you take out a loan. However, you must go through a participating lender that’s been approved by your state’s Housing Finance Authority. However, it’s important to remember that you must claim this certification on your taxes at the end of the year. Just because you obtain it, doesn’t mean it’s being used. That’s one reason it’s important to find an accountant who is familiar with the MCC and knows how to apply it (like us.) A Few Notes About the MCC Tax Credit While it seems like a no-brainer, there are a few things to think about in regards to getting this certificate and using it each year.
If this sounds like something you’re interested in, then you can learn more about the MCC Tax Credit on our blog and FAQs. If you’re looking for an accountant that is familiar with the credit, contact us, and we’ll get started with your taxes.  Buying and maintaining a house isn’t cheap, but tax deductions for homeowners can help make the processes more financially manageable. When you apply tax deductions, you reduce the amount of income the government taxes, reducing the amount of tax you owe. Most deductions work to help people who need it the most or as a reward, like those who have children, are in school, own a house, or donate to charity. As a homeowner, there are several tax perks to take advantage of, including many credits and deductions. Although we focus on the MCC tax credit for first-time homebuyers, this article looks deeper into the five top tax deductions for homeowners. Some of these you may already know, while others may help you reduce your taxes even more. What are Tax Deductions for Homeowners?First, let’s distinguish between standard tax deductions and those for homeowners. The thing that makes them different is that only those who own homes can use these specific deductions. Much like if you own a business or have children, you can deduct from your annual income only if you are a business owner or a parent. Tax deductions, as mentioned above, reduce the amount of income the government can tax. Tax credits work differently, giving you credit to apply toward the tax that you owe. This is what the MCC tax credit does for first-time homeowners. But if you don’t fall into the category of a “first-time homeowner,” then you cannot qualify for this perk. However, you can be eligible for tax deductions for homeowners and use them simultaneously with the MCC program. These tax deductions can include things like your mortgage interest, property taxes, and other home-related expenses that you can itemize. You want these itemizations to add up to more than the standard deduction. Otherwise, you won’t get the benefit. For married couples, the standard deduction is $24,800. For single filers, it’s $12,400 and $18,650 for heads of households. Top Tax Deductions for HomeownersOur list of the top tax deductions for homeowners falls into two categories. First, we want to suggest perks that most homeowners can use, but we also want to include those that earn you the biggest benefit. So let’s dive in. #1. Mortgage Interest DeductionsThis deduction sits at the top of the list because it’s typically the one that gives you the most significant reduction in your taxes. You can deduct the interest your pay annually by up to a specific limit. What are those limits? Well, that depends on when you secured your home loan:
To know how much interest you paid on your mortgage each year is easy — your servicer will provide you with an official tax statement showing you exactly how much you paid. #2. Home Equity Loan InterestLike mortgage interest, you can also deduct the interest you pay on your home equity loan if you have one. But as tax deductions for homeowners go, this one is only of use if you used some of that loan to improve your house. Before 2018, this process was different, and you could deduct the interest regardless of what you used the borrowed money to support. Remember that you can’t combine this tax perk with the mortgage interest deductions unless you’re under those limits. So if you hit the mortgage interest deduction limit, you can’t deduct your home equity interest. #3. Property TaxesOf all the tax deductions for homeowners, this one is the most universal as nearly everyone deals with property taxes. You can deduct your paid property taxes up to $10,000 ($5,000 each for those who are married and filing separately). The fine print here is that the limit also includes any deductions for sales tax or state and local income taxes. #4. Mortgage Insurance PremiumsIf you purchase mortgage insurance, you can deduct the annual cost if following a few rules and limits. This tax deduction includes the amount of insurance you paid for conventional loans, FHA loans (Federal Housing Agency), USDA home loans, or VA mortgages. It boils down to that the IRS considers mortgage insurance premiums to be deductible, just like mortgage interest. The 2020 tax year is the final year to claim this perk. And to qualify, the following must pertain to you:
Keep in mind that although the income threshold is $109,000, the IRS may reduce the deduction if your AGI is more than $100,000 ($50,000 for those who are married and filing separately). #5. Medical Home ImprovementMany believe that some of the best tax deductions for homeowners come from the cost of home improvement projects. Unfortunately, this is a myth. Most home improvement projects are not tax-deductible (or not fully deductible) because they often increase your home’s value. However, if you need to make renovations due to medical conditions, then those are tax-deductible. These renovations can be of benefit to you, a spouse, or a dependent. If these additions are temporary, then they’re fully deductible. If they’re permanent and increase your home value, then they are only partially deductible. Some examples include installing a wheelchair ramp or railings, widening doorways, or renovating bathrooms. Should You Use Tax Deductions for Homeowners?Yes, you should absolutely apply as many tax deductions and credits as possible, as long as they benefit your tax situation. As a homeowner, you’re making a costly move while helping to stabilize and stimulate the economy. This action is a positive one for our country, and therefore, there are tax benefits that go along with it. You’d be remiss not to apply them.
If you have any questions about tax deductions for homeowners or the MCC tax credit, feel free to reach out! |
AuthorRandy Tarpey CPA Archives
March 2021
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