Mortgage Credit Certificate (MCC) Program
New in 2014!! The MCC Program is a First-time Homebuyer Tax Credit Program. The MCC Program is not a mortgage loan product.
With an MCC, a Qualified Borrower may obtain a credit toward his/her Federal income tax liability. The MCC tax credit is a calculation based off of the mortgage interest paid. MCC Holders may use this credit over the life of the Qualifying Loan, provided the MCC Holder continues to qualify for the MCC. The actual value of an MCC and the associated tax credit will depend on the individual MCC Holder’s tax situation. If you sell your home within the first nine years, a Recapture Tax may apply to the subsidy you were provided through the MCC Program.
An MCC cannot be used in conjunction with a loan under the standard WCDA First-time Homebuyer Loan Program.
An MCC can be used with WCDA’s HFA Preferred Loan Programs, WCDA’s Advantage Loan Program and other non-WCDA purchase mortgage loan programs.
WCDA requires MCC applicants to complete the online homebuyer education class and the one-on-one counseling session offered by Wyoming Housing Network, Inc. prior to applying for a Mortgage Credit Certificate.
For additional information, contact WCDA or a WCDA MCC Participating Lender. A list of MCC Participating Lenders may be found under the Lenders link or by clicking here or in IRS Publication 530 “Tax Information for Homeowners” at www.irs.gov.
Federal Eligibility Requirements
The federal eligibility requirements including income and purchase price limits for the MCC Program are the same Federal Eligibility Requirements as required under the standard WCDA First-Time Homebuyer Loan Program. These federal eligibility requirements are listed below:
- First-Time Homebuyer - Each Qualified Borrower must have had no “present ownership interest” in a principal Residence at any time during the three-year period prior to the date on which the Qualifying Loan is executed. (Exceptions: the First-time Homebuyer three-year requirement does not apply in a Federally Designated Targeted Area nor does it apply to eligible Veterans
- Income Requirement - Qualified Borrowers must meet the Federal Income Limitations in regard to Total Annual Family income. These limitations are listed under the Income & Purchase Price Limits and are subject to change.
- New Mortgage Requirement -The Qualifying Loan must be for the purchase of a Residence and not for the refinance of an existing mortgage (except for construction and bridge loans with an initial loan term of 24 months or less.)
- Purchase Price Requirement - The Acquisition Cost of the Residence must not exceed the Purchase Price Limitation set forth in the most recent Authority determination for the county in which the Residence is located. These limitations are listed under the Income & Purchase Price Limits and are subject to change.
- Residence Requirement - For purposes of this Requirement, the term "Residence" shall mean a one unit, single family, owner occupied principal residence located in the state of Wyoming as listed below:
- Single Family detached homes
- Modular or manufactured housing on a permanent foundation and permanently affixed to real property
- No more than six (6) acres may be financed by the Qualified Loan
- No more than 15% of the total area of the Residence may be used in a trade or business
If you are considering applying for a Mortgage Credit Certificate (an “MCC”) through a WCDA Qualified MCC Lender, IT IS STRONGLY RECOMMENDED THAT YOU CONTACT A TAX PROFESSIONAL BEFORE APPLYING FOR AN MCC IN ORDER TO DETERMINE THE POTENTIAL BENEFITS AN MCC MAY PROVIDE YOU IN CONNECTION WITH YOUR HOME PURCHASE. The WCDA reviews MCC applications based on the contents of such applications, solely for compliance with program guidelines and does not determine whether a particular applicant will benefit from an MCC. THE WCDA MAKES NO REPRESENTATIONS OR PROMISES ABOUT THE VALUE OF AN MCC TO INDIVIDUAL APPLICANTS. THE MCC MUST BE APPLIED FOR AT THE SAME TIME YOU APPLY FOR YOUR HOME LOAN.
An MCC may only be issued for a fixed rate Qualifying Loan and may not be issued for a variable rate or step-rate loan. The Qualifying Loan must be for the purchase of your principal residence. No portion of the financing for the Residence may be provided from the proceeds of a qualified mortgage bond and no portion of the financing for the Residence may be provided by a related person to the Qualified Borrower (within the meaning of Section 144 (a)(3)(A) of the Code).
The federal government allows certain homeowners to claim an itemized federal income tax deduction for the mortgage interest paid each year on a mortgage loan. In addition, the tax credit may be claimed. This may be done on an IRS Form 1040. The tax credit will allow the Qualified Borrower to take a credit based on a percentage of the amount of mortgage interest paid each year. The remaining percentage of the mortgage interest not used in the calculation will continue to qualify as an itemized tax deduction if you so choose. The amount of the credit cannot be more than your federal income tax liability after all other credits and deductions have been taken into account.
The size of the annual tax credit can be from 10% to 50% of the annual interest paid on the certified indebtedness portion of the mortgage. The federal government limits the total amount of tax credit that may be taken in one year to $2,000 on MCCs over 20%. The Mortgage Credit Certificate will state the percentage of your MCC credit. An MCC credit in excess of the current year tax liability may be carried forward for use in the subsequent three years (if the MCC Holder still has a federal income tax liability following use of the subsequent year’s MCC credit). In any case, the amount of the credit, if taken, will reduce the MCC Holder’s home mortgage interest deduction.
As an example, assume you decide to purchase a home for $160,000, and can obtain a $152,000 mortgage at 5% for 30 years. Your interest on the loan for the first year (12 months) would be approximately $7,600. If you have an MCC with a 30% credit, you could claim a tax credit for 30% of the interest amount paid not to exceed $2,000. In this example, assuming that you paid interest on your loan for the full twelve months of the tax year (January through December), 30% of the interest amount is $2,280.00. You could claim the $2,000.00 credit amount, in the first year. This credit would reduce the amount of federal income tax you would otherwise owe (assuming your tax liability, after certain other credits are first applied to the tax you owe, is at least $2,000). In the alternative, it might increase the amount of refund owed you from taxes withheld from your wages.
If you expect a refund, you may want to consider adjusting your federal income tax withholding in advance to benefit from the credit on a monthly basis and thus, have more disposable income each month with which to make your mortgage payments. Before you do this, you need to consult a tax professional about how to accomplish this and how it may benefit you. In order to claim the credit, you must use a Form 1040 when filing your taxes. You may not use Form 1040A or 1040 EZ. In the example described above, your deduction for home mortgage interest on Schedule A of Form 1040 would be $5,600 ($7,600 of home mortgage interest you paid, minus the $2,000 credit amount).
Why the Mortgage Interest Credit is Valuable?
Generally, you are allowed to claim 100% of your mortgage interest as an income tax deduction. Deductions are listed on IRS form Schedule A and transferred to the IRS Form 1040 to reduce the amount of income used to calculate Federal taxes. However, it is not necessary to complete the IRS Form Schedule A in order to take advantage of your tax credit. The following is an example only to illustrate the difference in tax savings based on a fictional set of facts:
|No Tax Credit||With Tax Credit|
|Mortgage Interest||- 7,600||- 5,600|
|Tax Credit (MCC at 30%)||0||- 2000|
|Actual Taxes Owed||$4,703||$3,010|
*Income after Exemptions and other Itemized Deductions excluding Mortgage Interest
**Assuming the total of Schedule A Itemized Deductions exceed your standard deduction
***Based on the 2013 IRS Tax Table for a Single Individual
With a $2,000 tax credit, ($5,600) is taken as a Tax Deduction on Schedule A and the $2,000 is taken as a Tax Credit using Form 8396.
The example shows that the $2,000 credit will lower the tax liability by $1,693. The amount of credit is limited to a maximum of $2,000 annually when the Tax Credit (MCC) rate is greater than 20%.
The MCC tax credit is available to Qualified Borrowers and is applicable as long as the MCC Holder has the original mortgage and occupies the home as a principal residence. The certificate may be reissued only once if the property is refinanced.
- The original Mortgage Credit Certificate (MCC) is mailed to you by WCDA after your loan is closed, after you and your lender have completed the necessary paper work to prove your eligibility and after your lender has submitted the required documents to WCDA for review. No MCC will be issued by WCDA until all MCC required documents have been reviewed and accepted by WCDA and your file is determined to be complete.
- In order to claim the tax credit at the end of the tax year, you must complete IRS form 8396 and attach it to your IRS form 1040. The credit amount from IRS form 8396 must be entered on IRS form 1040. The Mortgage Credit Certificate issued by WCDA lists the applicable tax credit rate (30% in the example). You must reduce your home mortgage interest deduction on Schedule A by the amount of the mortgage interest credit shown on IRS form 8396.
- If you desire to change the amount of tax withheld from your paycheck, you may complete the W-4 (from your employer) according to directions in the “How to change your withholding” section of the W-4. The original W-4 would then be given to your employer.
This material is provided to you in an effort to help you understand the effect of the Mortgage Credit Certificate on your income taxes. Tax law is complicated and this is not a full explanation, nor is it intended to be. The above examples and the descriptions are to show you how tax laws work under certain circumstances. This is not a complete discussion and you should contact a tax professional to help you complete the required tax forms as well as adjusting your tax withholding if you choose to do so.
DO NOT RELY ON THIS MATERIAL TO ENSURE COMPLIANCE WITH TAX LAW; THIS IS NOT TAX ADVICE AND IS INTENDED ONLY TO BE AN ILLUSTRATION OF FORMS AND PROCEDURES TO HELP YOU BETTER UNDERSTAND THE MORTGAGE CREDIT CERTIFICATE PROGRAM. WCDA DOES NOT PROVIDE TAX ADVICE.