Mortgage Credit Certificate Program
The Mortgage Credit Certificate (MCC) program provides housing assistance by issuing a federal tax credit to first-time homebuyers statewide and repeat homebuyers in targeted areas.
- Qualified homebuyers can credit 20% of their annual mortgage interest paid against their year-end tax liability. A tax credit is a dollar for dollar reduction in tax liability.
- The tax credit is allowable every year for the life of the original mortgage (up to 30 years!)
- Available to first-time homebuyers statewide and repeat homebuyers in targeted areas.
- Household income limits can vary depending on family size and property location.
- Maximum sales price is $224,500 statewide.
Q-1: How will a Mortgage Credit Certificate help me purchase a home?
Mortgage Credit Certificates (MCC) reduce the amount of federal income tax a homebuyer pays. The estimated annual cost savings is calculated on a monthly basis to help homebuyers qualify for a higher mortgage payment, and therefore a higher priced home—expanding home choices. MCCs are available to homebuyers who meet household income and home purchase price limits.
Q-2: Where can I get a Mortgage Credit Certificate?
A homebuyer applies for the MCC at the same time they make a formal application for a mortgage. Many banks, credit unions and mortgage companies participate in the MCC program. A list is available on the MSHDA Web site at michigan.gov/mshda. Contact a participating lender to apply for the credit certificate.
Q-3: What types of mortgages can a MCC be combined with?
MCCs can be combined with conventional, FHA, Rural Development and VA mortgage loans. MCCs are not available with MSHDA mortgages or with refinanced loans.
Q-4: How do we calculate the Credit?
Total Mortgage Amount x Loan Interest Rate = Annual Interest
Annual Interest x MCC Rate (20%) = Tax Credit for the Year
Assuming a mortgage of $100,000 at 5.5% interest, the annual tax credit would be:
$100,000 x 5.5% = $5,500
$5,500 x 20% = $1,100 annual tax credit
The specific amount of the mortgage interest credit depends on how much interest you pay on the mortgage loan; however, the amount of the credit cannot be more than your annual federal income tax liability after all other credits and deductions have been taken into account. The unused portion of the mortgage interest credit can be carried forward to the next three years, or until used, whichever comes first. Please refer to IRS Form 8396 to calculate and claim your credit.
Q-5. How does the new MCC holder claim the tax credit?
The new MCC holder may receive the complete MCC tax credit saving annually at the time they file their tax return. Or they may receive the benefits monthly by adjusting their federal income tax withholding by filing a revised W-4 with their employer. By filing a revised W-4, the number of exemptions will increase, reducing the amount of taxes withheld and increasing the disposable net income.
Note: Homebuyers are encouraged to consult with a tax advisor and employer to help them with the necessary tax forms and, if they so choose, to properly adjust their tax withholding.
Q-6. What is the difference between the tax credit and tax deduction?
With a Mortgage Credit Certificate (MCC), for example, 20% of the mortgage interest is a tax credit—a dollar-for-dollar reduction of income tax liability for the life of the loan. The remaining 80% mortgage interest continues to qualify as an itemized tax deduction for the homebuyer.
Q-7. What happens when I refinance my home?
You can continue qualifying for the MCC Income Tax Reduction if you refinance your home. But you must apply for a Reissued Mortgage Certificate each time you refinance and use a MCC Participating Lender to refinance your loan.
Q-8. What requirements are there?
Federal, IRS and state regulations apply to everyone who obtains a MCC. These include:
- The homebuyer cannot have had an ownership interest in a principal residence in the last three years, unless the home is being purchased in a targeted area.
- The home must be a single-family residence and used as a principal residence. A principle residence can include single family homes, condominiums and certain manufactured homes.
- Because a tax credit is considered to be a subsidy, homebuyers may be subject to a federal ‘recapture tax’. This tax may apply, if the home is sold within nine years with a gain on the sale. MSHDA recognizes that this may be a concern for individuals, so the Recapture Tax Reimbursement Program was created to reimburse borrowers for any recapture tax paid to the IRS.
Q-9: Where can I obtain more information?
For more information on income limits, sales price limits and targeted areas visit our Web site at michigan.gov/mshda, and click on the homeownership tab.
- Mortgage Credit Certificate Lenders
- Housing Education
- Home Inspections and Property Checklist
- Mortgage Credit Certificate Flip Card
More details please clickhttps://www.michigan.gov/mshda/0,4641,7-141-45866_45868-216692–,00.html