Form 8329 Lender`s Information Return For Mortgage Credit Certificates MCCs Editorial Stock

Cover 2018 Mortgage Certificate Credit Flyer (2559x3300)

Table of Contents

• What is a Mortgage Credit Certificate?
• How do MCCs work?
• Who qualifies for an MCC?
• What are the benefits of an MCC?
• How do you apply for an MCC?

What is a Mortgage Credit Certificate?

A Mortgage Credit Certificate (MCC) is a type of tax credit that is designed to help low-to-moderate income homebuyers afford their mortgage payments. It is issued by a state or local government agency and can be used in conjunction with a home loan to reduce the borrower's federal income tax liability. The credit can be claimed every year that the borrower pays interest on the mortgage, for as long as the borrower lives in the home and has the mortgage.

How do MCCs work?

When a borrower receives an MCC, they can claim a tax credit for a percentage of the mortgage interest they pay each year. The credit is calculated based on a percentage of the mortgage interest paid, up to a maximum amount determined by the state or local government issuing the certificate. The percentage can range from 10% to 50% of the mortgage interest paid, depending on the program and the borrower's income.

The MCC is not a deduction, but rather a dollar-for-dollar credit that reduces the borrower's federal income tax liability. For example, if a borrower pays $10,000 in mortgage interest in a given year and has a 20% MCC, they can claim a $2,000 tax credit on their federal income tax return for that year. This reduces their tax liability by $2,000.

Who qualifies for an MCC?

Qualifications for an MCC vary by state and local government program, but generally, borrowers must meet certain income and purchase price limits. Income limits are typically based on the area median income, and purchase price limits are based on the average home price in the area.

Additionally, borrowers must meet certain other requirements, such as being a first-time homebuyer or purchasing a home in a designated target area. Some programs may also require borrowers to complete a homebuyer education course.

What are the benefits of an MCC?

The main benefit of an MCC is that it can significantly reduce the borrower's federal income tax liability, which can make homeownership more affordable. Additionally, the credit can be claimed every year that the borrower pays mortgage interest, for as long as they own the home and have the mortgage.

Another benefit of an MCC is that it can be used in conjunction with other homeownership programs, such as down payment assistance programs. This can further reduce the upfront costs of homeownership.

How do you apply for an MCC?

To apply for an MCC, borrowers must first find out if their state or local government offers a program. They can do this by contacting their state or local housing agency or searching online for information about MCC programs in their area.

Once they have identified a program, borrowers will need to meet the program's eligibility requirements and complete an application. The application will typically require documentation of the borrower's income, assets, and purchase price of the home.

After the application is submitted, the lender will work with the state or local government agency to obtain the MCC. Once the MCC is issued, the borrower can claim the tax credit on their federal income tax return each year.

Conclusion

Mortgage Credit Certificates can be a valuable tool for low-to-moderate income homebuyers looking to make homeownership more affordable. By reducing federal income tax liability, MCCs can help borrowers save money and make mortgage payments more manageable. However, it is important to carefully review the eligibility requirements and program guidelines before applying for an MCC, as they can vary by state and local government program.