12 September 2007
Foreclosure doesn't just happen to people who don't make their mortgage payments. Your homeowner's association (HOA) can take your house or condo if you're not careful. In one case, a disabled California man lost his home in a foreclosure sale because he was $123 behind on his homeowner's dues. The house was worth $280,000. Unfair? Abusive? You bet!Read More »
Mortgage Credit Certificates Raise Take-Home Pay
By Kelly WingardNFNS Columnist
Congress authorized
the Mortgage Credit Certificate Program in 1984, reforming the tax code to assist
low and moderate income taxpayers with obtaining new home loans. The
certificates, issued by state and local governments under federal guidelines,
grant tax credits to qualified mortgage holders. This tax relief allows
borrowers to reduce federal tax withholding and qualify for larger mortgages.
Mortgage Credit
Certificate Guidelines
States issue Mortgage Credit Certificates under the
following federal guidelines:
- The home's value cannot exceed 90 percent of average area home prices.
- Certificate holders cannot have owned a home within the previous three years;
- Applicants' income cannot exceed 115 percent of
area median income (100 percent for one- or two-person households)
States may relax these eligibility standards for homes
purchased within targeted areas.
How the Mortgage
Credit Works
Credit amounts range from 10 to 50 percent of the taxpayer's
annual mortgage interest, determined under a local formula, up to a maximum of
$2,000 per year. This credit amount
differs from the tax deduction for mortgage
interest that is generally available to qualified taxpayers. However, the
credit amount reduces the amount of mortgage interest certificate holders may
deduct, as the following example illustrates:
Annual mortgage interest $6,000
Applicable
credit percentage 35%
Tentative
credit $2,100
Maximum credit limitation $2,000
Mortgage interest $6,000
Less credit (
2,000)
Mortgage
interest eligible for deduction $4,000
With the help of a mortgage broker and qualified tax
advisor, a mortgagee can project his tax savings and adjust his withholding to
increase his monthly take-home pay, thus increasing the size of home loan for
which he can qualify.
Obtaining a Mortgage
Credit Certificate
Qualified applicants should receive a Mortgage Credit
Certificate Borrower Program Information Packet from their mortgage brokers. To
see if your community offers a program, contact your mortgage company or local
housing agency.
Sources:
Internal
Revenue Service: Mortgage Credit Certificate Program
Internal
Revenue Service: Form 8396, Mortgage
Interest Credit
Century 21: What is the Mortgage Credit Certificate
Program?
Institute
of Business and Economic Research: Housing
Subsidies and the Tax Code:
The
Case of Mortgage Credit Certificates
About the Author
Kelly Wingard is a
freelance writer and a 25-year veteran tax preparer. She is a regular
contributor to the
About the Author
Kelly Wingard is a freelance writer and a 25-year veteran tax preparer. She contributes regularly to the University of Illinois Tax School training manual for tax professionals.