While the well-publicized First Time Homebuyer's Tax Credit of 2010 has long expired, many home buyers in North Carolina are still eligible for a tax credit of up to $2,000 per year.
This is possible because of the Mortgage Credit Certificate, a program offered through the North Carolina Housing Finance Agency (NCHFA), that allows eligible buyers to deduct up to 30% of their mortgage interest from federal income taxes.
What is a Mortgage Credit Certificate and How Does It Work?
A Mortgage Credit Certificate (MCC) is a federal tax credit to assist home buyers with moderate and low incomes.
All home owners can claim mortgage interest as an itemized deduction on their taxes, but the MCC is a credit rather than a deduction. This means it will reduce most people's tax liability further, and can be used to adjust your W-4 withholding for an immediate increase in take-home pay (up to around $166 per month if they are eligible for the full $200 credit).
Qualified buyers can claim 30% of the interest they pay on your mortgage as a credit on their federal income taxes, up to $2,000 per year. This means that a buyer who claims the full amount and remains in the home for 10 years could save $20,000 in federal taxes.
Like all other homeowners, buyers who claim this credit are also eligible to claim the remaining 70% of their mortgage interest as a tax deduction.
Who Qualifies for an MCC?
To qualify for the Mortgage Credit Certificate, you must:
Be a First Time Home Buyer
You must not have owned a home in the last 3 years, usually defined as not having claimed any mortgage interest on your tax return during this time.
- Purchase A Primary Residence
You must be buying the home for you to live in, not as an investment property or as a secondary or vacation home.
- Earn at or Below the Maximum Qualifying Income
Income limits are defined by area and county. In North Carolin, they range from $66,000 in most rural areas up to $88,000 for a 3-person household in certain Metro areas. Household income is defined as the “gross income of the mortgagor and any other person expected to live in the residence who is 18 years of age or older.”
- Purchase a Home at or Below the Sales Price Limit
The sales price of the home is capped at $210,000 for existing homes and $220,000 for new construction.
The terms of the mortgage for qualified loans are determined by the lender, not by the NCHFA.
The loan may be FHA, VA, USDA, or conventional and requires lender approval. Once it is approved, the mortgage underwriter will submit your loan to the NCHFA in order to obtain the Mortgage Credit Certificate.
To protect againt fraud, the home buyer's W-2 must match their income tax return and income disclosure and the seller is required to sign an affidavit about the sale and to acknowledge and confirm the sale price of the home.
This program is subject to local approval and availability of funds, and may not be approved if all of the monies for your area have been used.
To learn more about the Mortgage Credit Ceritificate, contact your preferred mortgage lender or see the North Carolina Housing Finance Agency (NCHFA) website for details on the program and a list of cooperating lenders.