(MCC) Mortgage Credit Certificates

What is a Mortgage Credit Certificate?

Mortgage Credit Certificates (MCC) were developed by the federal government to assist low- to moderate-income families with home ownership. The actual certificates are issued by state and local governments, using federal funding, when you obtain a new mortgage of almost any type on your primary residence. Simply apply for the MCC when you apply for the mortgage.

Every American who has a mortgage is entitled to claim their mortgage interest as an deduction to income on their annual tax return. With a Mortgage Credit Certificate (MCC), a percentage of that interest can be taken as a direct deduction to your tax liability, so the amount of federal tax that you owe is lowered even more. Each state or locality sets its own cap on this percentage, which can range from 15 to 30 percent.

Each state or local government also has slightly different income limits for their MCC recipients, often depending on the location of the property to be purchased. Most MCC recipients must be first-time homebuyers, but veterans and those purchasing homes in targeted areas of some states may be able to have that requirement waived.

MCCs have two benefits. The first benefit adds the expected increased income from your tax savings to the amount of income you’re using to qualify for the mortgage, making it more likely that you qualify to become a homeowner. The second benefit can increase your take-home pay by reducing your tax liability, if you revise your W-4 with your employer after you receive the MCC. Even if you don’t choose to take this benefit a little at a time with your paycheck, you can still get the credit all at once (in addition to the deduction for the rest of the interest) when you file your taxes.

If you obtain a MCC with your mortgage and you sell that home within 9 years, you may have to pay all or part of your mortgage credit benefits back to the government.

Read more about your rights and responsibilities with the Mortgage Credit Certificate in IRS Publication 530 and contact your state to find out what the rules are in your area.