You probably have never heard of Mortgage Credit Certificates (MCC) before, most real estate professionals don’t even know about it. As a mortgage broker in Hawaii, this is one of the best kept secrets that really shouldn’t be!

Basically, the program creates additional income through increased tax savings to improve a homebuyer’s qulaification. By reducing the amount of federal income tax you pay, the Mortgage Credit Certificate (MCC) gives you more available income to qualify for a mortgage loan and assist you with house payments. Now that increase in your take-home pay can be incorporated into your mortgage application!

Mortgage interest paid to obtain a home loan can be deducted on the Schedule A.. The benefit of the MCC is the homeowner is able to reduce dollar-for-dollar up to 20% of their yearly mortgage interest against the taxes owed to the IRS.. If I’m losing you, I can make it easier. Calculate the savings, and you determine the benefits..

Loan Amount : $250,000

Interest Rate: 6%

Payment: $1,499

Now in the first year, you will pay a total of $14,916 in interest on your mortgage. Those numbers don’t change if you have a MCC or not. Now let’s assume you have a MCC.

You paid $14,916 in total mortgage interest. 20% (or 0.2) of that equals $2,983.00. That means if you would normally owe the IRS, let’s say, $4,297 that year, you would now owe $1,314 ($4,297-2,983) instead ! The MCC tax credit will reduce the tax liability owed to the IRS dollar-for-dollar.. The remaining mortgage interest is listed as an itemized deduction on the Schedule A.. The MCC credit is not a refundable credit, so if your tax liability is less than the credit, the difference will not be refunded to you.. The MCC tax credit is not a refundable credit, however there are benefits for the unused portion of the tax credit.. But you can carry the unused portion forward for up to 3 years to offset future income taxes, so all isn’t completely lost.

You can wait for your annual tax return if you want, but if you have a MCC, you might as well take full advantage and receive more immediate benefits, right? How’s an extra $249 a month in your pocket? Because of the MCC can create a substantial tax savings, the homeowners can adjust their W-4 to increase their take-home pay..

Most readers, right now, are wishing they heard of this MCC thing years ago. MCC program has been around since 1984.? Wrong. MCC program is a Tax Reform Act established in 1984 to provide housing assistance to low and moderate income families.. The Mortgage Certficate Credit program sets income and purchase restrictions for the homebuyer, in addition to other federal guidelines which must be met in order to qualify for the credit..

Obviously, not every real estate transaction is going to qualify. This program is typically for first-time homeowners, or those who have not had ownership interest in a principal residence at any time in the last 3 years. The home you buy must also be used as your primary residence, so no investment or second home properties. If the homeowner has refinanced, the homeowner will not qualify for the MCC.. Last but not least, the feds consider the MCC tax credit to be a subsidy, and as such, you may be subject to a “recapture tax” if you sell the home or your income increases above a specified level. I recommend soliciting advice from a tax professional if you fee the calculations are too difficult for your particular situation. But for the curious, more tax information can be found at http://www.irs.gov/pub/irs-pdf/p17.pdf on page 259.

All-in all though, the MCC is a great benefit for anyone who qualifies. So whether or not you need the credit to qualify for a home purchase, you should still investigate within your area to find out what the guidelines are. In Hawaii, you can find MCC infomration at the Housing, Finance, & Develeopement Corporation. Along with the forms you’ll need, they will also have a list of participating lenders. By asking about the MCC program, you can quickly decipher which mortgage consultants work with the participating lenders in your area. Better still, go to http://loangoose.com and request more information today!

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