The MCC tax credit is an excellent incentive for those who fall into the definition of a “first-time homebuyer.” We all know that buying your first home is both exciting and stressful. But most importantly, it’s expensive. To make it happen, many Americans require help in the form of financing, loans, and incentives, all pieced together to create a semi-complicated financial puzzle.
We understand that the home-buying process’s ins and outs can be confusing, especially when it comes to tax time. That’s why our CPA firm Sickler, Tarpey & Associates helps those navigating these challenges through tax season. We also specialize in the MCC tax credit and help numerous people obtain this generous perk every year. If you want to save a significant amount of money on your first home, then read on to learn how you can qualify for the MCC tax credit.
What is the MCC Tax Credit
If you’ve been following along with us, you know we are the go-to resource for the MCC tax credit. You probably already know what it is, but let’s give a little refresher for those who are new readers.
To summarize, it’s a tax incentive that helps “first-time homebuyers” save money by crediting a percentage of the interest they pay on their mortgage each year. Each state operates a little differently, so those living in Texas will follow the rules of the TDHCA MCC (Texas Department of Housing and Community Affairs). In contrast, those in our home state of Pennsylvania will follow those set by the PHFA (Pennsylvania Housing Finance Agency).
You can qualify for 10-50% credit on the interest you pay on your mortgage in your state. The percentage depends on the amount of your loan — larger loans receive lower rates where small loans generally receive higher percentages.
For example, with the TDHCA MCC, most first-time homeowners qualify for 20-25% of the interest paid. That means if you spend $1,000 of interest on your mortgage, you will receive a tax credit of about $200-250.
Although that may not seem like a lot, consider the savings when you multiply that amount for the entirety of your loan. The maximum amount you can receive as a tax credit is $2,000 annually. For a 30-year loan, that’s up to $60,000 in savings.
Non-Refundable Tax Credit
It’s important to remember that the MCC tax credit for first-time homeowners is non-refundable, meaning that it can only reduce the amount of tax owed rather than work as a tax refund. If you owe a lot of tax each year, this incentive is excellent. But if you tend to owe little to no tax, it may not be worth it to you. However, if you’re anticipating a year when you owe some tax, it’s still one of the best first-time homebuyer programs out there. Plus, you can always “carry forward” to the next tax year.
How to Qualify for the MCC Tax Credit
Now that you’re fully aware of the incentive let’s look at how to qualify. The key is in the description as a first-time homebuyer tax credit. That means, yes, you must be buying your first home unless you fall into one of the three exceptions:
Maybe it’s not your very first home, but let’s say you haven’t owned a property for over three years. In that case, time is reset, and you’re considered a “first-time homebuyer” once again. Same for those purchasing a house in a specified area designated by the Department of Housing and Urban Development (HUD). These homes usually fall into more rural or impoverished areas that could use a housing boost. Therefore, the “first-time” is waived.
And if you’re a veteran or an active military, you can also benefit from this incentive at any time. Even if you’re buying your second or third home, you can still enjoy the perks of the MCC tax credit.
And that’s it! It’s relatively easy to qualify for the incentive; the hard part is filing during tax season. But have no fear — we’re always here to help! Feel free to contact us with any tax-related questions.
Other First-Time Homebuyer Programs
Now that you have a taste for savings, maybe you’re wondering what other programs are out there for first-time homeowners. Well, good on you for thinking about this early! The key to taking advantage of these programs is to be proactive and obtain/file any necessary paperwork before purchasing your home. For some first-time homebuyer programs (like the MCC tax credit), this is a mandatory step.
Aside from the MCC incentive, you can also find state-specific programs that help new or first-time homeowners. Just as the TDHCA MCC serves Texas only, there are many other perks that Texas residents can enjoy. Likewise, those in Pennsylvania can find help from state resources, or those in Hawaii from Hawaii, California from California… you get the picture. A recent blog post goes more into detail, but all you need to do is some research.
And when in doubt, give us a call or send us an email, and we’re happy to help.