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!