Post on 24-Jan-2017
transcript
62 ! February 2014
If you are purchasing your first home you can take advantage of a new program in South Dakota that allows
you to get credit from the amount of interest you pay on your home loan each year.
The Mortgage Credit Certificate (MCC) is a certificate issued through the South Dakota Housing
Development Authority (SDHDA) that allows any first-time homebuyer to receive credit toward the annual
Federal Income Tax owed. The credit is calculated from the amount of mortgage interest paid each year.
This MCC continues for the life of the loan and could save you more money than the previous $8,000
credit offered in 2009.
The tax credit is based on a percentage of the interest you pay annually on your home loan. The
percentage is determined by the amount of the beginning balance of your loan, and the category it falls
into. Each year you can receive up to $2,000 credit toward the taxes owed, whether or not you pay in, or
receive money back at tax time. If your tax liability is less than the credit you receive, you can carry the
remaining credit forward and apply it for up to the next three tax years.
The tax credit is not to be confused with the itemized deduction that has been allowed by the IRS for
decades. That rule allows you to reduce your taxable income by the amount of mortgage interest paid each
year along with other items you will list on IRS form Schedule A. The MCC program works differently than
the mortgage interest deduction and can be used IN CONJUNCTION with it!
Here are the differences between the deduction and the credit:
Don’t Miss Out on the Best Home Buyer Tax Credit Ever!
MORTGAGE MOMENTS
5109 S. Crossing Pl., Sioux Falls, SD
605-275-2777
advanamortgage.com
by Craig Markhardt, Senior Mortgage Banker NMLS#7026
Craig is a senior mortgage banker with Advana
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www.HomeIdeasInfo.com ! 63
• THE DEDUCTION REDUCES your annual taxable income by
allowing you to subtract the mortgage interest paid on your primary
home from your adjusted gross income. All homeowner’s have the
option to do this every
year.
• THE MCC
PROVIDES A CREDIT
to be applied toward
your total IRS tax owed
after all deductions have
been taken. This is a
dollar-for-dollar credit
and directly becomes
money in your pocket.
The three basic qualifications to receive the MCC are:
• You must be a first-time home buyer, or must not have owned a
home within the previous three years.
• You must meet the income and purchase price restrictions as set by
the SD Housing Development Authority (SDHDA).
• The home being purchased must be your primary residence.
A first-time home buyer is defined as a person who has not had
ownership interest in a property within the past three years. A little
known fact is that a person can actually be considered a first-time home
buyer several times in a lifetime if that qualification is met.
Most first-time home buyers don’t know about the MCC program
because their Mortgage Bankers fail to mention it. To receive the MCC,
you must apply for it through your participating SDHDA approved
lender. When you apply
for your new home
loan, just ask about
details on the MCC and
complete the required
paperwork.
The MCC program
can be used with
Conventional, FHA,
VA, and USDA, and
SDHDA home loans.
The MCC is issued through the SD Housing Development Authority
and you are not restricted to using a SD Housing loan program. Because
the credit can be received as long as the loan is in place and increases
your net income, it can also help you qualify for a more expensive home
with some loan programs. Ask your Mortgage Baker for more details.
In the example above, the homebuyer using the MCC would be
entitled to a tax credit of $2,000 ($2,000 maximum even though 40% of
$5,807 mortgage interest paid equals $2,322). This reduces the total tax
owed by $1,652 ($4,236 - $2,584). The remaining $3,484 interest paid
(60% of the $5,807) is allowed to be used mortgage interest deduction.
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Example of a Single Individual with an annual income of $40,000 and a loan starting at $130,000 with an interest rate of 4.50%. Estimates based on 2013 IRS rules.
Without MCC With MCC
Annual Income $ 40,000 $ 40,000
Mortgage Interest Allowed as a Deduction $ (5,807) $ (3,484)
Taxable Income $ 34,193 $ 36,516
Tax Owed $ 4,236 $ 4,584
Tax Credit (MCC at 40%) $ 0 $ 2,000
Total Tax Liability $ 4,236 $ 2,584
64 ! February 2014
The tax credit is claimed by filing
IRS form 8396 and attaching it to your
IRS form 1040. If you wish to receive
immediate benefits of the tax credit,
you can revise your W-4 Withholding
Allowance Certificate with your employer
and reduce the amount of taxes withheld
from your paychecks throughout the year.
This will increase the income you take
home each paycheck!
The MCC program is designed to help
first-time home buyers offset a portion of
the mortgage interest paid and qualify for a
loan. There are other important terms and
benefits of the MCC that you will want to
consider when you apply for a new home
loan. Check with your Mortgage Banker for
specific details.
Although the process and details of
the Tax Credit can be quite confusing,
spend time researching it now to help
make the right choice on whether or not
to apply for the MCC. Be sure to choose
a Mortgage Banker who is experienced
with the MCC and can thoroughly assist
you in the decision making process. When
interviewing Real Estate Agents, tell them
you would like to work with a Mortgage
Banker who knows the process of applying
for the Mortgage Credit Certificate.
Contact your tax professional for advice
and information based on your specific
situation.
You may soon realize the benefits of
owning a home far outweigh those of
renting.
Granite and Tile Backsplash
FRED JENSEN CONSTRUCTION, LLCFred Jensen
(605) 351-9609
Patricia Jensen
(605) 359-0093
pfjensen74@gmail.com
fredjensenconstruction.com
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