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Need More Buying Power? Ask for the Mortgage Credit Certificate (MCC) Program.

September 29, 2015


Mortgage Credit Certificate

An MCC is a federal income tax credit designed to assist persons of low-to-moderate income to better afford individual ownership of housing and can be used with Conventional/Conforming, FHA, USDA and VA home loans.  With an MCC, the qualified homebuyer is eligible to write off a portion of the annual interest paid on the mortgage as a special tax credit, during each year that they occupy the home as their Principal Residence. The portion or amount of the tax credit is equal to the mortgage credit rate on the MCC multiplied by the annual interest paid (for example a 20% MCC provides a 20% tax credit). This credit reduces the federal income taxes of the buyer, resulting in an increase in the buyer’s net earnings. Increased buyer income results in increased buyer capacity to qualify for the mortgage loan. The MCC has the potential of saving the MCC holder thousands of dollars over the life of the loan.

MCC and the Federal Income Tax Mortgage Interest Deduction 

A taxpayer receiving an MCC reduces the portion of his/her normal deduction taken for interest paid on the mortgage loan by the percent of tax credit taken. However, the homebuyer can deduct the remainder of the annual mortgage interest payment not claimed as a credit. Although the interest deduction is reduced, the holder of the MCC still pays considerably less in taxes.


A Borrower with a 6.00% fixed rate 30-year mortgage of $300,000 would make $18,000 in interest payments during the first year of the mortgage. By using a 20% MCC, up to $3,600 (20% of $18,000) of the payments would be allowed to be taken as a “tax credit” toward that buyer’s federal income tax liability. The remaining 80% (in this case, $14,400) still is taken as a “tax deduction” from the homebuyer’s adjusted gross income.  The Borrower in this example has an annual tax liability of $5,000 or more after all other deductions and credits, and the after-MCC credit interest paid on the mortgage is reduced to 4.80%, i.e. annual interest of $14,400 on $300,000 corresponds to a 4.80% loan. This effect, however, is achieved only when the MCC holder-Borrower has sufficient income tax liability to receive the entire benefit from the MCC tax credit.

How to Apply for an MCC 

Not all lenders offer the MCC program.  The homebuyer may obtain an MCC through any of the participating Lenders. A list of the Lenders can be found on the Program Administrator’s website. MCCs are issued on a first-come, first-served basis, irrespective of the Applicant’s race, color, religion, national origin, age, or gender. There will be no restrictions as to the total number of Reservations of Funds issued to any particular Lender except for the Program limits. The homebuyer should apply for the MCC at the same time he or she makes a formal application for a mortgage loan. Lender is responsible for determining eligibility and acquiring an MCC Commitment from Program Administrator. The MCC is issued to the Applicant after the mortgage loan has been closed.

How to Use the MCC 

The homebuyer may receive the complete MCC credit savings annually at the time they file their tax returns or monthly by adjusting his or her federal income tax withholding by filing a revised Form W-4 with his or her employer. By taking the latter action, the number of exemptions will increase, reducing the amount of taxes withheld and increasing the buyer’s disposable net income.

During the first year of the Program, this Applicant would be entitled to a tax credit of $3,600. Based upon such an entitlement, he or she would be able to file in advance a revised Form W-4 withholding form taking into consideration this tax credit and have approximately $300 per month in additional disposable income. ($3,600/12 = $300 MCC Monthly Credit).

Taxpayers who file itemized returns may take a deduction for his or her mortgage interest paid each year, less the amount equal to the tax credit taken. (The interest deduction would be $18,000 less $3,600, or $14,400). In any event, when the homebuyer files his or her taxes each year, they must fill out IRS Form 8396 and attach a copy of their MCC with his or her filed taxes. This is not intended to be a full explanation, nor an assurance that such information will guarantee compliance with the tax laws.

We encourage the homebuyer to contact their tax advisor or their employer to help them with the necessary tax forms and, if they so choose, to properly adjust their tax withholding.

The MCC Recapture Tax  

According to Section 143(m) of the Internal Revenue Code of 1986, homebuyers with loans closing after January 1, 1991, who receive a Mortgage Credit Certificate, may be subject to a “Recapture Tax” if they sell or transfer their home within nine years after the Closing. A number of factors determine the amount of tax, if any, the Applicant must pay.

The tax, if any, will always be the lesser of:

  1. Half the gain from the sale of the home, or
  2. A tax based on a formula which takes into consideration:
  3. the original principal amount of the home mortgage;
  4. the number of complete years that pass before the home is sold;
  5. the median family income for the buyer’s area at the time he/she bought the home; and
  6. The buyer’s adjusted gross income at the time the home is sold.

There are several conditions that can exempt the MCC holder from the Recapture Tax. These include:

  1. No net gain on the sale of the property;
  2. Insufficient increase in the income of the MCC holder between the time of purchase and the time of sale;
  3. Sale of the home after the ninth year; and
  4. A sale due to death or divorce.

The Lender provides homebuyer with information about Recapture both at the time of application

First-Time Homebuyer Requirement 

The Applicant applying for an MCC cannot have had an ownership interest in a Principal Residence at any time during the preceding three (3) years ending on the date the mortgage is executed. This requirement does not apply to acquisitions of homes in Targeted Areas or if an Applicant is a Qualified Veteran. The Applicant and spouse, and any other adult who will be reflected on the title, must meet this First-Time Homebuyer requirement.

Income Limitation 

Qualified Applicants must have an annual gross household income that is within Program limitations. Income is calculated by taking the Applicant’s current gross monthly income, as well as that of anyone else who is expected to live in the Residence and become liable on the Deed of Trust or Mortgage (including a non-purchasing spouse) and multiplying that amount by 12. For the maximum Income limitations, see the current PROGRAM OVERVIEW published by the Program Administrator. Verification of the Applicant’s income is performed by the Lender and the Program Administrator. All persons whose income must be considered in processing the MCC application must also meet all other individual requirements of the Program, including the First-Time Homebuyer requirement, and each such person must execute all applicable Program Affidavits. This generally applies to spouses whether or not such spouse’s Income is used to qualify for credit underwriting purposes.

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