California offers incentives for first-time home buyers in the state, including various tax credits. The Mortgage Credit Certificate (MCC) program is one of these tax credits. It converts a portion of your mortgage payments into a federal income tax credit, but you must be eligible.
What is a tax credit?
A tax credit is an amount of money you can deduct from your tax bill when you complete your tax return. Credits are considered better than tax deductions. Both reduce your tax liability, but a credit can be used to directly offset any tax you owe, or it can increase your tax refund if you do not owe anything. With a refundable credit, the IRS will send you $100 if you do not owe any taxes and claim a refundable tax credit of $100.
How much is the homebuyer credit?
The Mortgage Credit Certificate program is a national program that allows participants to deduct between 10% and 50% of their mortgage interest. However, the program is administered locally, so the specifics will vary greatly depending on where you live.
The program is run by counties in California. The state housing authority allows participants to deduct up to 20% of their interest payments from their federal income tax liability.
You can still use a tax deduction for the remaining 80% of the interest you paid if you itemize your tax return. However, you cannot also take a deduction for that 20% that you received as a tax credit.
Who qualifies for the homebuyer credit?
Three factors determine your eligibility for the Mortgage Credit Certificate program: you must be a first-time homebuyer obtaining a new mortgage. There are income limits as well as limits on the cost of the home. The specifics of these limits may vary from county to county. You must live in the home you are purchasing. Your home must be your primary residence, not a rental property.
The income limit in California is no more than 115% of the area median income. The cost limit is no more than 90% of the average purchase price in the area over the past year. The home does not have to be a single-family detached residence. It can be a townhouse or a condominium.
How to apply
CalHFA suggests contacting a loan officer participating in the Mortgage Credit Certificate program for assistance in claiming the tax credit. These officers are trained and approved by CalHFA. They can help you navigate the home-buying process using the tax credit to your best advantage.
Bring the following records with you when you meet the loan officer for the first time, or keep them handy if you contact them: bank statements, tax returns from previous years, pay stubs or records, employment history.
Potential tax credit recapture
The IRS retains the right to “recapture” or reclaim part or all of the tax credit if all three of the following conditions are met: the borrower sells the home within nine years, the borrower earns significantly higher income than at the time of purchasing the home, the borrower realizes a financial gain from the sale of the home.
The maximum recapture tax is 50% of your profit or 6.25% of the original loan balance, whichever is less.
Frequently Asked Questions (FAQs)
How does the Mortgage Credit Certificate program make home buying more affordable? The credit is equivalent to cash from your federal tax bill. This leaves you with more income to cover your monthly mortgage payments.
What is a first-time homebuyer? Being a first-time homebuyer does not mean that you have never owned a home before. You just cannot have owned a home in the last three years.
Does
Was this page helpful? Thank you for your feedback! Let us know why! Other
Sources: California Debt Limit Allocation Committee. “MCC Fact Sheet.” National Council of State Housing Authorities. “Mortgage Credit Certificate Program Q&A.” Riverside County Economic Development Agency. “MCC Program Information.” IRS. “Publication 936, Home Mortgage Interest Deduction.” City of Brea. “Mortgage Credit Certificate Program.” Federal Deposit Insurance Corporation. “Mortgage Tax Credit Certificate (MCC), Page 2.”
Source: https://www.thebalancemoney.com/california-tax-credits-for-homebuyers-3193241
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
}@media screen and (max-width: 480px) {
.lwrp.link-whisper-related-posts{
}
.lwrp .lwrp-title{
}.lwrp .lwrp-description{
}
.lwrp .lwrp-list-multi-container{
flex-direction: column;
}
.lwrp .lwrp-list-multi-container ul.lwrp-list{
margin-top: 0px;
margin-bottom: 0px;
padding-top: 0px;
padding-bottom: 0px;
}
.lwrp .lwrp-list-double,
.lwrp .lwrp-list-triple{
width: 100%;
}
.lwrp .lwrp-list-row-container{
justify-content: initial;
flex-direction: column;
}
.lwrp .lwrp-list-row-container .lwrp-list-item{
width: 100%;
}
.lwrp .lwrp-list-item:not(.lwrp-no-posts-message-item){
}
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
};
}
Leave a Reply