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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