How to Save Even More on Your Income Taxes
Tax deductions are a real benefit of homeownership. Everyone talks about them enthusiastically at this time of year!
Tax deductions are a real benefit of homeownership. Everyone talks about them enthusiastically at this time of year!But did you know that the District’s Mortgage Credit Certificate (MCC) could lower your tax payments even more? You’ll be able to put more money in your pocket by having a MCC along with taking your mortgage interest deduction.The good news is that you could qualify for this program — the maximum household income in DC is $133,040 for a one or two people living in the home. And the maximum income for a family of three or more is $152,880.The MCC program, launched in the District last year, helps eligible borrowers claim a Federal Tax Credit of 20% on the mortgage interest paid during each calendar year.For example, if you owe $5,000 in income taxes and paid $10,000 in mortgage interest, you could claim a credit of $2,000. Therefore, you’ll be paying just $3,000 in income taxes rather than the original $5,000.The remaining 80% of the mortgage interest paid for that year may still be claimed as a tax deduction. Can’t beat that, right?How to ApplyThe District views its MCC program as a financial incentive to buy a home in the city. You can apply for a MCC at the same time as your loan application with a participating lender.You do have to pay a fee for the processing of your MCC. Check with your lender for the total amount charged for issuing you a MCC.It could be $800 if you go through the DC Open Doors program or $2,000 if you use another loan product. The District waived the MCC processing fee in June 2016, which was National Homeownership Month.Keep in mind that the one-time application fee for purchasing the MCC will eventually be offset. Your MCC will remain in effect for the life of your mortgage loan as long as this home remains your principal residence. You’ll be getting a 20% credit of the total interest paid on your loan for each year!You’ll need to complete the IRS Form 8396 when filing your federal income tax return each year to receive your tax benefit.How to Qualify
- Borrowers must be first-time homebuyers, with some exceptions such as the 3-year rule. You have not owned a principle residence within the last three years. Also eligible if you have purchased a residence in a targeted area or are a veteran utilizing a one-time exception.
- Maximum borrower income is based upon household income, currently $131,040 (family of two or less) and $152,880 (family of three or more).
- Sales price may not exceed program limits, currently $589,784 (non-targeted area) and $720,847 (targeted area).
- Single-family residences only and includes detached homes, townhomes and condominiums.
- DC’s MCCs can be provided in conjunction with a DC Open Doors loan program product or other loan program products not offered through the DC Open Doors loan program.
- Borrowers may obtain a conventional, VA or FHA 30-year fixed rate mortgage or an FHA adjustable rate mortgage through a lender of their choice; or apply for a DC Open Doors loan program through one of DCHFA’s participating lenders.
Don’t Forget — Virginia and Maryland MCC ProgramsMaryland Mortgage Credit Certificate: Similar to the D.C. program, home buyers are able to take an income tax credit up to a maximum of $2,000 of the mortgage interest paid on their loans through the Maryland mortgage program.Virginia Mortgage Credit Certificate: First-time buyers who use VHDA loan programs to buy their home and meet the income and home price criteria of the FHA Plus program also are eligible for a mortgage credit certificate. They receive a credit on their federal income taxes for the first 20% of the mortgage interest they pay. The tax credit can be used for the entire time the borrowers keep their loan. Contact me if you have any questions about the District’s Mortgage Certificate Program and similar ones in Maryland and Virginia. I'm here to help you find ways to make buying a home more affordable.