The tax credit is called an MCC or Mortgage Credit Certificate and was authorized by Congress in the 1984 Tax Reform Act as a means of providing housing assistance to low- and moderate-income homebuyers.
The feasibility of the MCC Program is dependent upon the extent to which homebuyers have federal tax liability which can be offset by the MCC tax credit
Higher income homebuyers with few deductions or credits are generally the best able to use the MCC tax credit as a form of housing assistance
A qualified homebuyer using the MCC is able to claim up to 20% of annual mortgage interest paid as a federal income tax credit. The remaining mortgage interest (80%) continues to qualify as an itemized deduction
As an example, on a $200,000 mortgage with a 5% interest rate the homebuyer will pay $10,000 in interest the first year. Twenty percent of this amount, or $2,000, can be used to directly reduce the homebuyer’s federal income tax liability, thus reducing their monthly outflow by $166.66
The MCC Program provides a dollar-for-dollar reduction of federal income taxes. Unused credit can be carried forward up to three years and the homebuyer can retain the federal tax credit for the life of the loan so long as the homebuyer continues to occupy the property as their principal residence
Likewise, there is a grant program for down payment assistance that may qualify a first time homebuyer to receive up to $10,000 in down payment assistance as well as closing costs.
Both of these programs are facilitated by the Washington State Housing Finance Commission.
Their website is: www.wshfc.org
Want more information? Contact….
Michelle Swanson, Mortgage Consultant,
Canyon Park Mortgage, a division of Prospect Mtg
Phone: 425-776-1450
Email: Michelle.Swanson@ProspectMtg.com
NMLS#36763
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