There’s a federal tax credit that could mean thousands of dollars in savings for Virginia’s first-time homebuyers. It’s called a Mortgage Credit Certificate, or MCC, and it’s from VHDA.

An MCC from VHDA could reduce the amount of federal income tax that a first-time buyer has to pay. Unlike an income tax deduction, an MCC is a dollar-for-dollar credit against the homebuyer’s federal income tax liability. The credit is equal to 20 percent of the homebuyer’s annual mortgage interest, and it’s good for the life of their mortgage, every year that they continue to live in their home. Over the years, that can add up to a substantial savings, making the cost of homeownership much more affordable.

How to Apply for an MCC:

Homebuyers must ask their lender about an MCC when they first apply for a mortgage, and they must receive a commitment from VHDA prior to closing. There are some eligibility requirements as well, and these can be found at vhda.com/MCC, along with helpful videos explaining in more detail how MCCs work.

How to Claim the MCC Tax Credit Each Year:

Three documents will be needed:

• About a month after the homebuyer closes on their new home, they’ll receive an envelope from VHDA containing the official MCC document. It has important information they’ll need to claim the tax credit. This document should be saved in a safe place, because it will be needed every year at tax time.
• Around early February each year, the homeowner will receive Form 1098 in the mail from their lender. This shows the amount of mortgage interest that was paid during the tax year, and will be needed to calculate how much the MCC can save them.
• The homeowner will also need to complete Form 8396 to claim the MCC tax credit. It can be downloaded from IRS.gov.

VHDA will determine which homebuyers qualify for an MCC under the internal revenue code. But, we do not, and cannot give tax advice. So, homebuyers should consult with their tax advisor to determine if an MCC will save them money, and how valuable an MCC could be to them over the life of their loan.

For many first-time homebuyers, an MCC could be an excellent way to boost the tax benefits of owning a home – putting more cash in their pockets for as long as they live in their home. Learn more at vhda.com/MCC.

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