Mortgage Credit Certificate
Encyclopedia
In the United States
, a Mortgage Credit Certificate (more commonly referred to as MCC) is a certificate issued by certain state
or local government
s that allows a taxpayer to claim a tax credit
for some portion of the mortgage
interest
paid during a given tax year.
, mortgage lenders will often use the estimated amount of the credit on a monthly basis as additional income
to help the potential borrower qualify for the loan.
Some of these restrictions may be waived for certain circumstances. For example, following a natural disaster, state or local governments may raise or remove the income limits for affected municipalities temporarily to help spur redevelopment.
The amount of mortgage credit allowed varies depending on the state or local government that issues the certificates, but is capped at a maximum of $2000 per year by the IRS. As an example, if a homebuyer were to receive an MCC that offers a 30% credit on a $200,000 loan for 30 years with a rate of 6%, the allowable tax credit would be figured as follows (all numbers rounded):
Because the total credit in this example exceeds the IRS limit of $2000, the homebuyer would report a $2000 credit on their tax return. The buyer may continue to receive a tax credit for as long as they live in the home and retain the mortgage.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, a Mortgage Credit Certificate (more commonly referred to as MCC) is a certificate issued by certain state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
or local government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
s that allows a taxpayer to claim a tax credit
Tax credit
A tax credit is a sum deducted from the total amount a taxpayer owes to the state. A tax credit may be granted for various types of taxes, such as an income tax, property tax, or VAT. It may be granted in recognition of taxes already paid, as a subsidy, or to encourage investment or other behaviors...
for some portion of the mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
paid during a given tax year.
Uses
The MCC program is designed to help first-time homebuyers offset a portion of their mortgage interest on a new mortgage as a way to help homebuyers qualify for a loan. Because it is a tax credit and not a tax deductionTax deduction
Income tax systems generally allow a tax deduction, i.e., a reduction of the income subject to tax, for various items, especially expenses incurred to produce income. Often these deductions are subject to limitations or conditions...
, mortgage lenders will often use the estimated amount of the credit on a monthly basis as additional income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
to help the potential borrower qualify for the loan.
Qualifications & Example
Generally speaking, homebuyers who wish to obtain an MCC must meet certain minimum guidelines:- Buyers must not have owned a home in the previous three years.
- Buyers must meet income and purchase price restrictions.
- Buyers must intend to use the new home as a primary residence.
Some of these restrictions may be waived for certain circumstances. For example, following a natural disaster, state or local governments may raise or remove the income limits for affected municipalities temporarily to help spur redevelopment.
The amount of mortgage credit allowed varies depending on the state or local government that issues the certificates, but is capped at a maximum of $2000 per year by the IRS. As an example, if a homebuyer were to receive an MCC that offers a 30% credit on a $200,000 loan for 30 years with a rate of 6%, the allowable tax credit would be figured as follows (all numbers rounded):
- Mortgage Interest Paid (1st Year): $11,933
- x MCC Credit: 30%
- = Total Credit: $3579
Because the total credit in this example exceeds the IRS limit of $2000, the homebuyer would report a $2000 credit on their tax return. The buyer may continue to receive a tax credit for as long as they live in the home and retain the mortgage.