What is a Florida Mortgage Credit Certificate and how does it work?

This explanation has been taken from the eHousing Lender guidelines.


The following is a short IRS TAX Disclaimer. This material is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. This material may be used to support the promotion or marketing of the matter discussed herein. The taxpayer should seek advice from an independent tax advisor regarding the matter set forth herein based on the taxpayer’s circumstances.

What is a Mortgage Credit Certificate? A mortgage credit certificate (“MCC”) was designed to assist persons of low and moderate income to better afford their own home. The procedures for issuing MCCs were established as an alternative to the issuance of single-family mortgage revenue bonds. As distinguished from a bond program, in an MCC program, the mortgagor may take a tax credit in an amount equal to the annual amount of interest paid on the mortgage loan multiplied by the Mortgage Credit Certificate Rate. Currently, to maximize the benefit to the MCC applicants, the Mortgage Credit Certificate Rate for the Program is 50% but may not exceed $2,000 annually.

As an example, an Applicant with a $200,000, 30-year, fixed rate mortgage (monthly payment has equal monthly installments of principal and interest) and a 3.50% interest rate could realize the following federal income tax savings (numbers are rounded): During the first year of the Program, the Applicant in the example would be eligible for a tax credit of up to $2,000 if not limited by tax liability. The Applicant would be able to file a revised W-4 withholding form taking into consideration the anticipated tax credit and have approximately $166 per month in additional disposable income in the first year. Applying that savings to the monthly payment, decreases the payment to $732.

In the example, 100% of the mortgage interest paid is $7,511 so 50% of the mortgage interest paid is $3,755. Because the credit rate is 50%, the amount that may be claimed as a credit is capped at the Example Mortgage Amount $200,000 Interest Rate 3.5% Monthly P & I $898 Total Interest Paid first 12 months = $7,511.00 Mortgage Credit Certificate Rate 50% Maximum First Year Credit Amount = $2,000.

HFA of Hillsborough County Multi- County First-Time Buyer Program Page 11 $2,000. According to IRS instructions on Form 8396, the amount of allowable mortgage interest deduction on Schedule A is determined by reducing by the amount on Line 3 of Form 8396 ($2,000). Consequently, the total mortgage interest paid in the first 12 months was $7,511, subtract $2,000 and the remaining $5,511 may continue to be used as a deduction. The tax credit amount of $2,000 may be used as a tax credit after all other deductions and credits have been applied and to the extent there is tax liability. If not all of the $2,000 can be used because there is not enough tax liability, it may be carried forward for up to three years. However, it cannot be added to the allowable mortgage interest deduction. Borrowers who receive an MCC and who continue to own and occupy the financed home will be eligible for a tax credit each year for the term of the loan.

The amount of the credit actually claimed on the MCC holder’s federal income tax return cannot exceed the amount of federal income taxes due after other credits and deductions have been considered.

For example, if after other tax credits and deductions, a borrower only owes $1,100, he or she cannot use the MCC tax credits in an amount in excess of $1,100. In this example, the unused $900 MCC related tax credit can be carried forward up to three years to be applied against future income tax liability. A purchaser of a new or existing single-family home may apply for a MCC through any participating mortgage lender at the time he or she applies for a mortgage from the lender. An MCC cannot be issued to a homebuyer who is refinancing an existing mortgage or in connection with a mortgage from a relative. Also, an MCC cannot be used in connection with a bond program. It’s important to note that all or a portion of the MCC related tax credit may be subject to recapture if the Residence is sold within the first full nine years of purchase. This tax credit recapture is further explained in the Notice of Potential Recapture Tax and in the Recapture Tax brochure provided to an applicant. It is important that borrowers understand the MCC and consider getting more information from their tax professional or the IRS.