How is the MCC Tax Credit Calculated?
The MCC is an IRS-approved tax credit that allows eligible homebuyers to claim 20% of the mortgage interest paid annually on their home. Homebuyers can receive this dollar-for-dollar tax credit and reduce their federal income taxes owed as long as they keep the loan and continuously occupy the home. For the purposes of qualifying for a mortgage loan, the MCC increases homebuyer’ purchasing power by decreasing their debt-to-income ratio thus helping them more easily qualify for a home loan.
The following example shows how the MCC tax credit is calculated. This example assumes the homebuyers get a 30-year mortgage of $250,000 with a 6.0% interest rate. Based on these assumptions and for educational purposes only, here is how the MCC tax credit would be calculated:
Example of a MCC Tax Credit Calculation
- Sample Home Loan Amount: $250,000
- Sample Annual Interest Rate: 6.0%
- Total Annual Interest Paid: $15,000
- Mortgage Credit Certificate Rate: 20%
- Annual MCC Amount (Line 3 x Line 4): $3,000
- Monthly Credit Amount (Line 5 ÷ 12): $250
The amount of the annual tax credit is then deducted from the homebuyer’s total tax liability when they file their taxes. In the event that the homebuyer is not able to take the full amount of the credit in a particular tax year—it can be carried forward for up to three years. The above example is not an actual offer of credit and the actual amount of the MCC tax credit received will vary considerably depending on the amount of the homebuyer’s loan, their interest rate and the term of the loan.
Can I get the MCC outside of the City of Portland?
In Oregon, the MCC is only available within the City of Portland.
Do I have to a first-time homebuyer to get the MCC?
In most parts of Portland to qualify for the MCC you may not have owned and occupied a home in the past three years. However, there are two target areas where existing homeowners can obtain an MCC if they purchase a home with in these designated areas.
Do I have to use certain loan officers to get an MCC?
Yes. The program is only available through the MCC Approved Loan Officers. Lenders and loan officers who want to offer the program should contact PHB for details.
How long does MCC last?
The MCC will remain in effect for the life of your mortgage loan, as long as the home remains your principal residence and you keep the same loan. The amount of your annual mortgage credit will be calculated on the basis of 20% of the total interest paid on your mortgage loan for that year. As the amount of interest you pay on your first mortgage declines so does the credit.