What Is The Mortgage Interest Credit?
The Mortgage Interest Credit is a tax credit offered to eligible low-income taxpayers to help them afford to purchase a house by helping offset mortgage payments over the term of the loan.
While taxpayers can try to navigate the homebuyer process alone, it’s highly recommended that they consult with their lenders and tax advisors to understand how this credit impacts their insurance, taxes, and amortization schedule.
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Key Takeaways:
- The Mortgage Interest Credit is a tax credit offered to eligible low- to moderate-income taxpayers who receive a mortgage credit certificate from their local or state government to help them afford homeownership.
- Taxpayers who qualify for the mortgage credit certificate may be eligible to save up to $2,000 per year in interest.
- New homeowners who receive an MCC can claim the mortgage interest credit by filing IRS Form 8396, Mortgage Interest Credit.
Who Can Claim The Mortgage Interest Tax Credit?
The only taxpayers who are eligible to claim the mortgage interest tax credit are those who were issued a qualified Mortgage Credit Certificate (MCC) by a local or state governmental agency that was under a qualified mortgage credit certificate program. Additionally, the home related to the certificate must be the taxpayer’s main home and be located within the jurisdiction of the same governmental unit that issued the certificate.
What Is A Mortgage Credit Certificate?
Mortgage Credit Certificates (MCCs) are pieces of documentation that are given to low-income borrowers by the IRS that offer them a credit deduction of up to $2,000 on the mortgage interest they paid on their first home.
It’s beneficial to note that not every lender is approved to offer mortgage loans with an MCC.
Can You Keep The Mortgage Interest Tax Credit If You Refinance Your Mortgage?
It is possible for taxpayers to refinance their mortgage without losing the mortgage interest tax credit, as long as their existing mortgage credit certificate is reissued while meeting the following requirements:
- The MCC was issued to the person who holds the existing certificate for the same property.
- The MCC must entirely replace the existing certificate, meaning the holder cannot keep any of the existing certificate’s outstanding balance.
- The certified indebtedness outlined on the reissued certificate is not more than the original balance shown on the existing certificate.
- The reissued certificate has a credit rate that does not exceed that of the existing certificate.
- The amount on line 3 of the reissued certificate is not larger than the allowable amount of the existing certificate.
In order to keep the tax credit while updating the financing on their mortgage loan, taxpayers can calculate the amount of credit they would have been allowed based on their original mortgage credit certificate. If the credit rates are different when refinancing, taxpayers must submit a statement of separate calculations to the IRS.
How Much Is The Mortgage Interest Credit Worth?
First-time homebuyers who qualify for a mortgage credit certificate may be eligible to claim up to $2,000 in interest payments.
How To Claim The Mortgage Interest Credit
Taxpayers can claim the mortgage interest credit by filing IRS Form 8396, Mortgage Interest Credit. Within this form, the filer must include personal identification details, such as their name and Social Security Number (SSN), as well as the name of the party who issued the MCC, the certificate number, and the issue date.
Purchasing a home is overwhelming for anyone, and the process undoubtedly raises some questions: should I get a fixed-rate or an adjustable-rate mortgage? Should I get a second mortgage? How can I save money on homeowner taxes?
The good news is you don’t have to do it alone. Schedule a free consultation with the tax professionals at Ideal Tax to ensure you are making the most of your tax-saving options when buying your first home.
