What is a Mortgage Credit Certificate or MCC?

Mortgage Credit Certificate (or also referred to as MCC) is a federal tax credit available to first time home buyers who meet certain requirements. With the tax credit, eligible home buyers can adjust their their withholding to take advantage of the savings monthly instead of waiting until they file their taxes.  The MCC remains available as long as the borrower owns and occupies the property.

The tax credit is 20% of the mortgage interest. For example, if you have a mortgage of $300,000 at an interest rate of 5%, the interest paid is $15,000. $15,000 x 20% = $3,000 tax credit. $3,000 divided by 12 months = a possible monthly benefit of $250 if you adjust your withholdings.

A tax credit is different than a deduction. A tax credit is applied to what is owed as a tax liability to Uncle Sam and a tax deduction is applied to your adjusted gross income. If a home owner who has MCC does not have enough tax liability to use, the MCC credit can be accumulated for three years. PLEASE DISCUSS MCC WITH YOUR CPA OR TAX ADVISER to make sure it’s something that makes sense for your finances.

Here are some basic guidelines for qualifying for a Mortgage Credit Certificate:

• Must be a first time home buyer*. (A first time home buyer is someone who has not owned a home in the past 3 years).
• Owner occupied, primary residences only
• Income limits apply* (see below)
• Acquistion cost apply* (see below)
• Recapture tax may apply (see below)
• Home Buyer Education required
• May be used with Washington State Housing Finance Commission mortgage programs, like Home Advantage.
• Must use a WHFHC approved lender.

*Unless buying in a targeted area as defined by WSHFC.

Maximum Annual Income – based on how many people are in the household.

• King and Snohomish Counties: 1-2 person $90,000 | 3+ persons $97,000 (same in targeted areas)
• Pierce, Kitsap, Thurston, Island and Clark Counties: 1-2 person $80,000 | 3+ persons  $90,000 (same in targeted areas)
• San Juan County: 1-2 person $75,000 | 3+ persons $90,000 (n/a for targeted areas)
• Whatcom County: $70,000 | 3+ persons $80,000 (same for targeted areas)
• Skagit and Jefferson County: 1-2 person: $70,000 | 3+ persons $80,000 (n/a for targeted areas)
• All other counties (non-targeted): 1-2 person: $65,000 | 3+ persons $75,000
• All other counties in target area: 1-2 person: $80,000 | 3+persons $85,000

Property Acquisition Cost Limits

• King County and San Juan County: $450,000 | targeted area: $475,000
• Pierce, Snohomish and Jefferson  Counties: $370,000 | targeted area: $395,000
• Kitsap and Whatcom Counties: $300,000 | targeted areas: $335,000
• Clark and Island Counties: $330,000 | targeted areas: $360,000
• Skagit County: $285,000 | targeted area: n/a
• all other counties: $235,000 | targeted area: $285,000

Recapture Tax

When you decide that you’re going sell your home, a recapture tax may apply. The tax may be the lesser of 50% of the capital gains or 6.25% of the original loan amount. For this to take place, all three events below must take place:

• you must sell your home within 9 years from when you purchased it;
• your income needs to significantly increase; and
• you have a substantial gain on the sale of your home.

For more information about the recapture tax, click here.

MCC is not a mortgage. However it can be used in conjunction with mortgages like Home Advantage, and you can apply for it at the same time when you apply for your mortgage with an approved lender. If you are interested in getting a mortgage credit certificate, I’m happy to help you with homes located in Washington state, where I am licensed to originate residential mortgage loans.

Again, I strongly recommend that you contact your tax professional before applying for MCC to make sure it benefits your personal tax situation.