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.