If you’re buying a home, you’ve probably searched for governmental tax programs that can save you money. Although there are a few different programs out there, the Mortgage Tax Credit Certificate is specific to first-time homebuyers and the specialty at our CPA firm, Tarpey, Sickler, and Associates. Buying your first home will be a significant expense, so this federal program assists those just starting the process. Let’s look at precisely what it is and how it can help you.
To qualify for the Mortgage Tax Credit Certificate, you must fall under the definition of a “first-time homebuyer” set by the Finance Housing Agency. A previous blog post goes into more depth here; but to sum it up, you need to fall into one or more of these categories:
What Does the Mortgage Tax Credit Certificate Do?
Now that you’ve determined whether you qualify, let’s dive deeper into what the mortgage tax credit certificate does for you. The certificate is a tax credit, often called the MCC Tax Credit. By applying for the certificate, you can save up to $2,000 annually when you complete your taxes.
The MCC Tax Credit is a non-refundable federal tax credit that operates on a state-by-state basis. Not every state is the same. The credit you can receive ranges between 10% to 50% of the interest you pay on your mortgage and caps at $2,000 annually. That means you can save up to $2,000 a year for the entirety of your loan. On a 30-year mortgage, that's up to $60,000 in interest savings!
How Does the MCC Tax Credit Work?
This is where the mortgage tax credit certificate gets a little complicated. Remember, if you’re interested in applying for the certification and taking advantage of this tax perk, you can always contact our CPA firm to help!
But for now, let’s look at an example of how the MCC Tax Credit works. The amount of credit you can claim is a percentage of the interest you pay on your mortgage. Specifically, the program looks at the previous year’s interest and ranges between 10% - 50%. The more expensive the home purchase is, the lower the percentage will be.
Example: How Much Do You Get on a $100,000 Mortgage?
Let’s pretend that you qualified for a 50% credit on the mortgage interest that you pay. Here’s an example of what that could look like on a $100,000 home loan.
Loan Amount – $100,000
Interest Rate – 3.0%
Total Mortgage Interest Paid Year 1 – $2,876
50% of Mortgage Interest Paid– $1,438
Total Credit Earned – $1,438
As you can see in the example above, the home buyers didn’t earn the full $2,000 because their interest rate was lower. The homeowners will receive the payout with their annual taxes because it’s a tax credit and not a deduction.
Hopefully, you now understand what the Mortgage Tax Credit Certificate is and how it can help you. Again, if you need any assistance understanding the MCC Tax Credit, feel free to contact us!