The Mortgage Credit Certificate (MCC) program allows eligible first time home buyers to claim up to 20-50% (depending on county and purchase price) of the mortgage interest paid each year as a federal income tax credit. This still allows the remaining mortgage interest, property taxes, and mortgage insurance to be tax deductible. MCC's are available in ALL counties in Colorado.
How does the program work?
For the life of the loan, MCC holders can claim a dollar-for-dollar credit of income tax liability equal to 20-50% (percent varies on loan amount) of the annual mortgage interest on the first mortgage. This reduces the amount of federal taxes owed, but cannot be issued a refund. So by changing your payroll withholdings, increasing your take home pay, buying a home can be much more affordable.
A borrower with a 5.5% fixed rate 30-year mortgage of $150,000 would make approximately $8,200 in interest payments during the first year of the mortgage. With a MCC of $1,640 (20% of $8,200) of the interest payments would be allowed to be taken as a tax credit toward the your federal income tax liability. This would effectively add into your monthly income $136.67 ($1640 / 12 months = $136.67) when you change your withholdings through work.
** Mortgage Credit Certificate = ($1640 / 12 months) = $136.67 MORE in your paycheck each month. How? By adjusting your W4 at work. This can be used to help in household bills, put towards the mortgage, put in savings, etc...... Remember the monthly benefit varies by your loan amount and interest rate!!
When using the MCC tax credit, you are still eligible to deduct the remaining 70-80% of annual mortgage interest from your taxes (because remember the MCC is on the first 20-50% of your mortgage interest)
As shown in example above, assume you pay $8,200 for the first year in mortgage interest. With a 20% MCC, the homebuyer could take a credit of $1,640 upfront in your paycheck (20% of $8,200), AND an additional mortgage interest deduction of $6,560 (80% of $8,200) when you file your taxes!
Who is eligible for the MCC program?