A MCC or Mortgage Credit Certificate is a certificate that allows the taxpayer to claim for a tax credit. This certificate is issued by some local or state governments so that you can get federal tax credit for a particular amount of mortgage interest paid by you in a particular tax year. It can be availed by first time homebuyers, who meet the various guidelines laid out by the USDA. Due to this credit, you may qualify for a larger and better home.
While all household owners can claim a deduction in taxes for mortgage interest, you can get an extra deduction with the help of a Mortgage Credit Certificate. If you have a MCC, a percentage of your mortgage interest is converted into tax credit. This can be used by you to subtract dollar-to-dollar from your liability of income tax, while the remaining percentage is tax deductible. However, if you want to benefit from a MCC, it is vital that you have a tax liability. You can use this credit in two ways – by claiming it while filing your taxes at the end of the year or by getting a benefit every month through your employer.
There are two types of tax credit rates available for you to choose from, which is decided at the time of reservation. There is a 20% tax credit that does not contain a cap return and a 40% tax credit that constitutes of a cap return of $2,000. For ex – If your amount of loan is $200,000 with 5% rate of interest and a tax credit of 40% of mortgage interest. Then, the annual savings amount will be $2,000 even if the annual total interest exceeds the amount. This happens because there is a cap return of $2,000 on 40% tax credit.
We will try to give you the credit rate that will be the most beneficial for you will be given to you. The value of mortgage credit allowed is decided by the local and state governments who have issued the certificate.
Who is eligible for this program?
To be eligible for this program you need to be a first time house buyer, who for the past three years did not own a house, or qualified veterans who will be using this place as their primary residence. The household should meet the income qualifications and requirements of USDA underwriting, and should be valued below the maximum price for the region. When these criteria’s are fulfilled, then you might be eligible for the Mortgage Credit Certificate or MCC that enables you to save up to $2,000 in taxes every year.
Sometimes, in certain circumstances, some of these restrictions are waived off. Like, the income limit from a locality might be removed after an earthquake to encourage redevelopment.
What is veteran discount?
From January 1, 2015, it has been decided that the veterans shall receive a discount of $400 on the fees. But to qualify for this discount, the veteran must meet at least of the given criteria:
- He/she should be an honourably discharged veteran.
- He/she should be National Guard service personnel.
- He/she should be a first time house buyer, who is serving on Active Duty.
What is recapture tax?
A recapture tax may be applied when you decide to sell off your house. This tax is the lesser amount of either 6.25% of the original amount of loan or 50% of the capital gains. For this it is vital that there is a significant increase in your income, your house is sold within 9 years from the time you purchased it, and there is a significant gain at the time of sale of your home.
For more information on MCC, get in touch with us today.