The benefits of homeownership for qualified Kentucky homebuyers just got even more impressive. A program known as the MCC (Mortgage Credit Certificate) is being implemented by the state to allow a tax credit of up to 25% of the mortgage interest paid each year, not to exceed $2000, for qualified buyers. The MCC is available to qualified first-time home buyers in all Kentucky counties and to all qualified homebuyers in certain areas, including Scott County, Madison County, and Clark County.
Like the $8000 First-Time Homebuyer Tax Credit, the program is geared toward helping those who have never owned a home or have not owned a home in the last three years. However, the MCC program has the additional benefit of also being available to second-time or subsequent homebuyers in certain targeted areas, which include Scott County, Madison County, and Clark County.
What is the MCC and How do I Get the Benefit of It?
The MCC is a tax credit is applied directly to the homebuyer’s tax liability after all other credits and deductions, including the standard mortgage interest deduction have been applied. A tax credit differs from a deduction; whereas a deduction reduces the amount of the buyer’s income that is subject to income tax, a tax credit is a direct reduction of the amount of taxes owed. The MCC can be used in combination with the $8000 First-Time Homebuyers Tax Credit.
Unlike the $8000 credit, the balance of which can be paid directly to the buyer if the credit is greater than their total tax liability, the MCC is a non-refundable tax credit. This means that in order to insure the full benefit of the MCC’s tax credit, the buyer should reduce the amount of taxes being withheld from their regular paycheck. In other words, since the credit with the MCC cannot be refunded the taxpayer if they have paid in more taxes than they owe after the MCC’s tax credit is applied, the taxpayer should reduce the amount of tax they are paying in during the tax year, so that a tax liability will exist at the end of the year. This will have the added benefit of giving the buyer more available cash in their paycheck during the year. The withholding change is simple to implement, and the credit has a three-year carryover, so the ideal withholding amount can be determined gradually.
Who Qualifies for the Tax Credit?
Kentucky residents who are first-time homebuyers or who have not owned a home in three years, in any county. However, for buyers in Scott County, Madison County, and Clark County, among other areas, the credit is also open to those who currently own a home or have owned one in the past three years.
The buyer’s income must fall within Kentucky Housing loan income limits. Limits vary by county and family size, but here are some key examples:
• In Fayette, Woodford and Jessamine Counties, up to $65,000 for a one or two person household, or up to $74,750 for a household of three or more.
• In Scott and Clark Counties, up to $78,000 for a one or two person household, or up to $91,000 for a household of three or more.
• In Jefferson and Oldham Counties, up to $61,500 for a one or two person household, or up to $70,725 for a household of three or more.
• In Madison County, up to $69,960 for a one or two person household, or up to $81,620 for a household of three or more.
How Do I Apply to Receive an MCC?
The application is completed with and submitted by your mortgage lender. A qualified applicant pays a fee of $500, which is submitted with an application and purchase contract, which allows the lender to reserve funds for the specific buyer. The fee may also be paid by other parties, and in the case of VA loans must be paid by a party other than the buyer. Reservations for MCC’s begin July 1, and closings can begin approximately August 2.
What Kind of Homes Can Be Purchased When Using an MCC?
• New construction or existing homes qualify.
• The home can have a total sales price of up to $258,000.
• The home must be used as the buyer’s primary residence during the years that the tax credit is used.
• There is no set expiration date by which the home must close. The MCC is reserved for the buyer when the application, contract, and fee are received and the application approved.
Can the MCC be used with the $8000 First-Time Homebuyer Tax Credit?
Yes, a homebuyer can take advantage of both credits.
Can the MCC be used with any kind of loan?
The MCC can be used on any loan type (conventional, FHA, VA). However, the MCC cannot be used with Kentucky Housing loans.
Can I Contract to Purchase a Home Now, and Reserve an MCC after July 1st?
For homebuyers who have been pre-qualified and are deemed eligible, Ball Homes will accept a purchase contract that includes a contingency on the buyer’s successfully acquiring an MCC reservation on or after July 1st, with a closing date of August 2nd or later.