Residential Tax Break - Mortgage Credit Certificate

The Mortgage Credit Certificate is a little known, but wonderful tax benefit that is available to purchasers of residential property in Michigan. The program was created by the federal government and is administered through state agencies. For a small fee, homebuyers in designated geographic areas of the state may purchase a federal income tax "credit" certificate. The certificate assures the purchaser may claim a specific percentage of the annual interest the homeowner pays annual as part of a mortgage as a direct credit against annual income taxes. The bottom line is, for a few hundred dollars, a homeowner can reduce up to thousands of dollars of annual federal income tax obligations.

MCC Income and Sale Price Specifications

• Where may I obtain an MCC?
  
• You apply for the MCC at the same time you make a formal application for a mortgage. Lenders vary in their requirements for mortgage loan application, but generally you will have made a purchase offer on a specific residential property and will be ready to supply credit information, employment data, and other information to the lender. There will be a non-refundable fee to make application for an MCC. Talk to a participating lender to learn the application requirements. Lenders will work with borrowers on a first-come-first-serve basis. There is no allocation of MCCs by lender or by geographic area. After you have made a formal application, the lender will call MSHDA to reserve an MCC for use in connection with your mortgage loan. This reservation will hold the MCC while the lender is processing your application and the MCC is processed by MSHDA.

• How long does the credit certificate last?
  
• Each year, the MCC Credit will be calculated on the basis of the certificate credit rate times the interest you paid on your mortgage loan that year. The MCC will be in effect for the life of your original mortgage loan, so long as the home remains your principal residence and you do not refinance the original mortgage.

• What are the MCC requirements?
  
• Federal, IRS, and state regulations apply to everyone who obtains an MCC. These include:
  • * You cannot have had an ownership interest in a principal residence, including a mobile home in a mobile home community, at any time in the last three years, unless you apply for a loan in the targeted area. In these targeted areas, you do not have to be a first-time homebuyer.
  • * The home you buy must be a Single Family residence and used as your principal residence after you obtain your mortgage.
  • * The mortgage loan must be a new loan, not the refinancing of an existing mortgage loan or land contract.
  • * Because the federal government considers the tax credit to be a subsidy, you may be subject to a federal recapture tax if you sell your home within nine years and realize a profit on the sale. The amount of such a tax depends on various factors at the time you sell or dispose of your home; your lender will give you more details about the recapture tax.
  
  
• What are income and purchase price limits?
  • * In some areas of the state, you must be a first time homebuyer.
  • * Income and Sales Price Limits fluctuate from year-to-year. This link provides current information
  
  
• What kinds of properties are eligible?
  
• The MCC can be used in conjunction with mortgage loans for new, never-occupied houses; existing, previously owned homes; condominiums, and certain manufactured homes. You must occupy the dwelling as your principal residence.