MCC (Mortgage Credit Certificate)
Streamlined 203K Program (FHA)
The Michigan State Housing Development Authority’s (MSHDA) Mortgage Credit Certificate (MCC) is a federal tax credit issued in connection with the purchase of a home. This allows homebuyers to credit 20% of the annual mortgage interest paid against their year-end federal income tax liability.
The tax credit is good for the life of the original mortgage providing the home remains the principal residence.
- Purchase price maximum of $224,500
- Income limits vary statewide from $64,100 to $123,620, total household income, determined by location and family size
- First-time homebuyers in non-targeted area only
- Repeat and first-time homebuyers in targeted areas
- The home must be a single family, principal residence
- Maximum of two acres (no exceptions)
- Cannot be combined with a MI First Home or a MI Next Home MSHDA Mortgage
- Tax credit remains in effect for the life of the original mortgage loan (maximum 30 years) as long as the home remains the homeowner’s principal residence
- Eligible homes: principal residence, single family unit, condominium, or manufactured home
- Available only on non-MSHDA mortgages. FHA, RD, VA or Conventional loan (not eligible on FHA 203k)
Let’s take a look at how this can work for you.
In Michigan, the program offers a full 20% tax credit on the amount of annual interest paid. On a $100,000 mortgage at 5% interest, the approximate annual interest amount is $5,000 for the first year. At the full 20% tax credit, $1,000 can be deducted from the amount of Federal Income Tax you owe. ($5,000 x 20% = $1,000; making your effective interest rate 4.0%). Or another way to look at the effect of the MCC program on your monthly payment would be to take that $1,000 annual tax credit and divide it by 12. The MCC effectively lowers your payment by $83.33 per month.
The MCC credit remains in effect as long as your home continues to be your principle residence and the original mortgage remains in place. If you refinance your home loan, sell your home, or purchase a new home as your primary residence, the credit program will end.
So let’s look at the reasons to use the MCC Program. Well, the benefits of this program are significant!
- In Michigan, up to 20% of your mortgage interest can be credited on your Federal tax return as a direct tax credit. Remember this is a dollar for dollar reduction in the tax owed
- Plus, the remaining 80% of mortgage interest paid will continue to qualify as an itemized deduction on your Federal tax return if you use Schedule A
- Since the MCC is applied after all other credits are subtracted, any unused portion may be carried forward against future Federal Tax returns for up to 3 years. (See your tax advisor for specific federal credit criteria)
- The program is effective for the life of the original mortgage
- The program may also be applied to individuals with current non-taxed income, but who have the potential for taxable income in the future
Also, the renovations you’ll make have the potential to create equity in your home right away!
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