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MCC Mortgage Credit Certificate Available in 2018

2018 MCC – First Home Buyer Tax Credit

MCC mortgage credit certificates are a dollar for dollar Federal tax credit only available to eligible first time home buyers.

This tax credit almost didn’t survive the Tax Cuts and Jobs Act bill that was signed into law on December 22nd, 2017.

In November, Housing Finance Agencies (HFAs) across the Country sent out notices to approved lenders stating that the Mortgage Credit Certificate (MCC) program would be cut with the initial tax cut plans that were being proposed.

If you’re a first time home buyer (have not owned in the past 3 years), you should look up the income limit of your locally available MCC program.

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After reading this article, you’ll understand how you can use a MCC to save thousands in future taxes, and why it’s the biggest secret in the world of home buyer assistance programs.

MCC Explained

A mortgage credit certificate allows first time home buyers to exchange a portion of your mortgage interest deduction for a dollar for dollar tax credit.

The Tax Cuts and Jobs Act bill, now law, modified the limits for writing off mortgage interest down to a maximum loan amount of $750,000 on new homes purchased in 2018.

For the purposes of explaining how this program works, we will use a purchase price of $300,000, which is a little under the national average home price.

A mortgage credit certificate allows you to use a exchange a percentage of your mortgage interest into a tax credit.  This percentage may vary from State to State, so be sure to check with your local MCC approved lender for your exact credit.

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Calculating MCC Tax Credit

Ok, hopefully I didn’t lose you there. As all things related to the tax code, it’s a little complicated.

If you were following along, we are using a purchase price of $300,000, and for the mortgage credit certificate, a common credit percentage is 20%.

Here’s the formula for calculating your tax credit.

  • Multiply your principle loan balance by your interest rate.  This is amount of mortgage interest you will pay over 12 months.  Example: $300,000 x 4% (interest rate) = $12,000
  • Multiply the annual interest deduction by the MCC percentage.  Example: $12,000 x 20% MCC credit = $2,400
  • Your tax deductible mortgage insurance is reduced by the mortgage credit of $2,400
  • You are now left with a mortgage interest deduction of $9,600 ($12,000 – $2,400 credit)
  • You now have a credit of $2,400 to offset any taxes that you may owe.

NOTE:  Tax credit may not exceed actual taxes owed, and can be carried into forward tax years for up to 3 years.  Please consult your local MCC expert and tax specialist for actual numbers.

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Tax Deduction vs Tax Credit

The mortgage interest you pay when you make your mortgage payment each month is a tax deduction.  Most States will also allow your property taxes as a tax deduction.

A tax deduction reduces the amount of income used when calculating the amount of Federal income taxes owed.  With enough tax deductions, you can change tax brackets to have all of your income taxes at a lower rate than if you would not have taken the deduction.

A tax credit is applied directly toward any outstanding tax liability you owe.  In the above scenario, let’s say your total Federal taxes owed for the past year $7,500, and you normally would have received a couple of hundred dollars as a tax refund.

After using your tax credit, you will now get an additional $2,400 added to that!

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NOTE: Consult your local MCC approved first home buying expert for details and guidelines specific to your local program. Consult a tax professional for how this tax credit will affect you specifically.

Why the Big Secret?

Unfortunately, if you are not researching and learning about this program yourself, chances are you will not hear about it.

The lender cannot make money off of a MCC, and it requires more paperwork.  Inexperienced loan officers and call center lenders are not going to have the first clue about what a mortgage credit certificate is and how to get one.

In my experience, lenders and loan officers that do not know how these programs work will usually tell you that the program either does not exist, was discontinued, or that you do not qualify.

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Work with an Expert

If you have to bring this program to the attention of your loan officer, you need another loan officer!  There are plenty of loan officers that understand this program and can help.

Not working with a professional could cost you thousands of dollars in tax credits over the life of your loan!

Still have questions?  You can either ask a question her, or leave a comment/question below and I will answer you right away.

About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Angela says:

    Sadly, especially for many who are on Social Security, if you have no taxable income, the MCC tax credit does not help. So you must have at least some taxable income for the MCC credit to work for you. I see this is briefly mentioned in the article, but it’s worth mentioning again.

  • Mary says:

    Once you purchase your home and get your MCC is there a special Tax preparer that you need to go to? So basically does all Taxes Preparer know what to do with the MCC?

    • Scott Schang says:

      You do not need a special tax preparer. You should be able to just present your tax preparer with your MCC documentation and they will know what to do. If they do not, I would find another tax preparer! Hope this helps?

  • Marcy says:

    What if I sell my home after 3 years? after 2 years? Do I have to pay any of the credit back? Marcy

    • Scott Schang says:

      Hi Marcy, it is not uncommon for there to be a “repay period” that would require a portion of the credit be paid back if you sell. You will have to check the guidelines for any MCC that you have access to. Do you have an MCC now? Or are you thinking of buying a home and using an MCC?

  • Annoynmous says:

    In the event the MCC tax credit reduces your total deductions below the standard deduction limits ($12,000 for individuals) are you able to elect the standard deduction and still claim the MCC credit?

    • Scott Schang says:

      Yes, an MCC is NOT a tax deduction, it is a tax Credit. For example, if your $12,000 standard deduction exceeds your itemized deductions (mortgage interest, state and local taxes), then you could use your standard deduction, and you would still have a tax credit to offset your remaining tax liability. Does this make sense?

      • Annoynmous says:

        Yes, that makes sense. I didn’t know if the IRS would see it as “double dipping”. In a sense, reducing your itemized deductions to earn this MCC, but then claim standard deduction. I see it as a win-win!

  • Elizabeth Smith says:

    I am a first time home buyer and purchased almost a year ago this spring. I currently have a loan for my house through my local bank. I have a 3 year ARM loan. I was wondering if I qualify for for the MCC tax credit and if I do how do I go about receiving it?

    • Scott Schang says:

      Hi Elizabeth, the MCC tax credits that I have access to in California require that you apply for the tax credit at the time you purchase your first home. We are unable to apply for an MCC tax credit after you’ve already bought the home.

      I would suggest finding the MCC tax credit program available to you in your City, County or State, and see if they have a grace period following the purchase that would allow for you to apply for the tax credit after the purchase.

      Hope this helps?

      • Krish says:

        Where & how to apply for Mortgage Credit Certificate

        • Scott Schang says:

          Hi Krish,

          You lender will typically be the one to initiate the Mortgage Credit Certificate paperwork at the time of the purchase of your first home. You can research on your own to find out where to get an MCC. It can be offered by the City, County, or State. The first step would be to ask your loan officer. You may also find that some lenders do not offer the MCC program, so you may have to find the right lender.

          If you would like help finding someone that is familiar with this program, feel free to shoot me an email to scott@findmywayhome.com and let me know where you’re buying. I’ll do my best to introduce you to someone that has experience.

          Hope this helps?

          • Elvira says:

            I purchased a home with my daughter. can we both we the MCC credit? We file separately.

          • Scott Schang says:

            Hi Elvira, this is actually a tax question, and you should consult both the City/County that you received the MCC from, and your tax preparer. It is unlikely that both of you would be able to take 100% of the tax credit, and I am not even completely sure if you can “split” the credit. It may depend on how you applied for the MCC at the time.

            I know this isn’t an exact answer, but I hope it gets you pointed in the right direction.