What we verified in “Mortgage Credit Certificates (MCC): how they work”

Statements and where we checked them

The statements with rules, figures or dates, with the exact place in the source and the date we checked them.

1. Under federal law (26 U.S.C. §25), the holder of a mortgage credit certificate gets a credit against tax equal to the certificate credit rate times the interest paid during the year on the certified indebtedness; if the certificate credit rate exceeds 20%, the year's credit may not exceed $2,000; and if two or more people own the home, that limit is allocated by their respective interests.

   Sources 1 · 26 U.S.C. §25(a): 'an amount equal to the product of- (A) the certificate credit rate, and (B) the interest paid or accrued by the taxpayer during the taxable year on the remaining principal of the certified indebtedness amount'; 'If the certificate credit rate exceeds 20 percent, the amount of the credit allowed to the taxpayer under paragraph (1) for any taxable year shall not exceed $2,000'; 'shall be allocated among such persons in proportion to their respective interests in the residence' · Checked October 17, 2026

2. Under the same law, the credit rate in the certificate may not be less than 10% or more than 50%; the certificate is issued by a state or political subdivision with authority to issue qualified mortgage bonds, for the acquisition, rehabilitation or improvement of the taxpayer's principal residence, and it specifies the credit rate and the certified indebtedness amount.

   Sources 1 · 26 U.S.C. §25(c)(1) and (d)(1): 'is issued under a qualified mortgage credit certificate program by the State or political subdivision having the authority to issue a qualified mortgage bond'; 'in connection with the acquisition, qualified rehabilitation, or qualified home improvement of the taxpayer's principal residence'; 'the certificate credit rate, and'; 'the certified indebtedness amount'; 'shall not be less than 10 percent or more than 50 percent' · Checked October 17, 2026

3. Under the same law, the certified debt must meet requirements of Code section 143, including residence, the 3-year (first-time buyer) requirement, purchase price and income; the program may not be limited to loans from particular lenders, except as regulations provide, and the certificate is not transferable; and no certificate is issued for a home financed with a qualified mortgage bond.

   Sources 1 · 26 U.S.C. §25(c)(2)(A): 'subsection (c) (relating to residence requirements)'; 'subsection (d) (relating to 3-year requirement)'; 'subsection (e) (relating to purchase price requirement)'; 'subsection (f) (relating to income requirements)'; 'which is not limited to indebtedness incurred from particular lenders'; 'a mortgage credit certificate is not transferrable'; 'no mortgage credit certificate may be issued with respect to any residence any of the financing of which is provided from the proceeds of a qualified mortgage bond' · Checked October 17, 2026

4. Under Code section 143, the 3-year requirement covers buyers who had no present ownership interest in their principal residence at any time during the 3 years before the mortgage is signed, with exceptions such as targeted-area homes and financing for veterans who have not used it before; the purchase price may not exceed 90% of the average area purchase price; and family income generally may not exceed 115% of the applicable median family income (140% in targeted areas).

   Sources 2 · 26 U.S.C. §143(d)–(f): 'who had no present ownership interest in their principal residences at any time during the 3-year period ending on the date their mortgage is executed'; 'financing with respect to targeted area residences'; 'financing of any residence for a veteran'; 'does not exceed 90 percent of the average area purchase price applicable to such residence'; 'family income is 115 percent or less of the applicable median family income'; '140 percent or less of the applicable median family income' · Checked October 17, 2026

5. Under 26 U.S.C. §25(e), if the year's credit exceeds your tax limit, the excess carries over to each of the 3 following years; the certificate is in effect from its issue date until the agency revokes it or the home stops being the person's principal residence; and the agency must give public notice of the eligibility requirements at least 90 days before issuing certificates.

   Sources 1 · 26 U.S.C. §25(e)(1), (e)(3) and (e)(5): 'such excess shall be a carryover to each of the 3 succeeding taxable years'; 'the certificate is revoked by the issuing authority'; 'the residence to which such certificate relates ceases to be the principal residence of the individual to whom the certificate relates'; 'At least 90 days before any mortgage credit certificate is to be issued'; 'the eligibility requirements for such certificate' · Checked October 17, 2026

6. According to IRS Publication 530, the mortgage interest credit is intended to help lower-income individuals afford home ownership; you can claim it each year on Form 8396 for part of the mortgage interest you pay; you may be eligible if your state or local government issued you a qualified MCC; an MCC is generally issued only with a new mortgage to buy your main home; the MCC shows the credit rate and the certified indebtedness, and only interest on that amount qualifies; and you must contact the government agency before you get a mortgage and buy, for example your state or local housing finance agency.

   Sources 3 · Publication 530 (2025), 'Mortgage Interest Credit': 'intended to help lower-income individuals afford home ownership'; 'you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay'; 'You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government'; 'Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home'; 'Only the interest on that amount qualifies for the credit'; 'You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home'; 'Contact your state or local housing finance agency for information about the availability of MCCs in your area' · Checked October 17, 2026

7. According to Publication 530, you claim the credit by completing Form 8396 and attaching it to your Form 1040, 1040-SR or 1040-NR; if you itemize on Schedule A, you must reduce your mortgage interest deduction by the amount of the credit; after the rate-based limit, the credit generally cannot exceed your tax liability; and if the tax limit reduces your credit, you can carry the unused portion forward to the next 3 years or until used.

   Sources 3 · Publication 530 (2025): 'complete Form 8396 and attach it to your Form 1040, 1040-SR, or 1040-NR'; 'you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3'; 'your credit generally can't be more than your tax liability'; 'you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first' · Checked October 17, 2026

8. According to Publication 530, if your loan is equal to or smaller than the certified indebtedness on your MCC, you count all the interest paid during the year; if it is larger, you count only part, based on the ratio of the certified indebtedness to the original loan amount, and that fraction does not change while you are entitled to the credit.

   Sources 3 · Publication 530 (2025), 'Figuring the Credit': 'If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount shown on your MCC'; 'all the interest you paid on your mortgage during the year'; 'If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid'; 'The fraction won't change as long as you are entitled to take the mortgage interest credit' · Checked October 17, 2026

9. According to Publication 530, if you refinance the original loan that had an MCC, you must get a new MCC to claim the credit on the new loan, and the credit you can claim may change.

   Sources 3 · Publication 530 (2025), 'Refinancing': 'you must get a new MCC to be able to claim the credit on the new loan'; 'The amount of credit you can claim on the new loan may change' · Checked October 17, 2026

10. According to Publication 530, if you bought your home after 1990 using an MCC and sell it within 9 years, you may have to recapture (repay) all or part of the benefit you received from the program.

    Sources 3 · Publication 530 (2025), 'Selling your home': 'If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program' · Checked October 17, 2026

11. On line 2 of Form 8396 you enter the certificate credit rate shown on your certificate, not the interest rate on your mortgage; the form also asks for the name of the certificate's issuer, the certificate number and the issue date.

    Sources 5 · Form 8396 (2025): 'Enter the certificate credit rate shown on your Mortgage Credit Certificate. Do not enter the interest rate on your home mortgage'; 'Name of issuer of Mortgage Credit Certificate'; 'Mortgage Credit Certificate number'; 'Issue date' · Checked October 17, 2026

12. According to the IRS, if a state or local government issued you a qualified MCC, you use Form 8396 to figure your mortgage interest credit for the year and any carryforward to the next year.

    Sources 4 · About Form 8396, Mortgage Interest Credit (last reviewed Mar. 31, 2026): 'If you were issued a qualified Mortgage Credit Certificate (MCC) by a state or local governmental unit or agency under a qualified mortgage credit certificate program, use Form 8396 to figure'; 'Your mortgage interest credit for the current year'; 'Any credit carryforward for the following year' · Checked October 17, 2026

13. According to IRS Publication 523, if you financed your home under a federally subsidized program, such as loans with mortgage credit certificates, you may have to recapture all or part of the benefit when you sell or transfer the home; you do it by increasing your federal income tax for the year of sale, even if you can exclude your gain; if you received a subsidy, you must file Form 8828 with your return whether you sold at a loss or a gain; and if you had a loss, you do not pay back any subsidy.

    Sources 6 · Publication 523 (2025), 'Paying Back Credits and Subsidies': 'loans with mortgage credit certificates'; 'you may have to recapture all or part of the benefit you received from that program upon the sale or other transfer of ownership of your home'; 'You recapture the benefit by increasing your federal income tax for the year of the sale'; 'You may have to pay this recapture tax even if you can exclude your gain from income'; 'you must file Form 8828 with your tax return whether you sold your home at a loss or a gain'; 'If you had a loss, you won't have to pay back any subsidy' · Checked October 17, 2026

14. On Form 8828, if the sale produced a loss you do not owe recapture tax; the gain is multiplied by 50%; and if your modified adjusted gross income does not exceed your adjusted qualifying income, you do not owe recapture tax either.

    Sources 7 · Form 8828 (Rev. November 2024), Part II, lines 13–17: 'If a loss, stop here and attach this form to your Form 1040. You do not owe recapture tax'; 'Multiply line 13 by 50% (.50)'; 'Modified adjusted gross income'; 'Adjusted qualifying income'; 'Subtract line 16 from line 15. If zero or less, stop here and attach this form to your Form 1040' · Checked October 17, 2026

15. According to Fannie Mae's Selling Guide, states and municipalities can issue MCCs, which let an eligible first-time buyer claim a federal tax credit for a percentage of mortgage interest (usually 20% to 25%); to calculate the debt-to-income ratio, the maximum possible MCC benefit is added to the borrower's income rather than subtracted from the payment, using the formula loan amount × note rate × MCC percentage ÷ 12; and on a purchase the lender obtains a copy of the MCC.

    Sources 8 · Selling Guide B3-3.4-10, Mortgage Credit Certificates (Mar. 4, 2026): 'States and municipalities can issue mortgage credit certificates (MCCs)'; 'to claim a federal tax credit for a specified percentage (usually 20% to 25%) of the mortgage interest payments'; 'treat the maximum possible MCC income as an addition to the borrower's income, rather than as a reduction to the amount of the borrower's mortgage payment'; '[(Mortgage Amount) x (Note Rate) x (MCC %)] ÷ 12 = Amount added to borrower's monthly income'; 'a copy of the MCC' · Checked October 17, 2026

16. For example, the Texas Mortgage Credit Certificate Program of the state housing agency (TDHCA) says it is available to veterans and first-time homebuyers with a first mortgage through the program, and also as a stand-alone option, and that the certificate entitles you to a dollar-for-dollar reduction of your federal tax liability.

    Sources 9 · Texas Mortgage Credit Certificate Program (TDHCA): 'Available to Veterans and First Time Homebuyers with a first mortgage through the program, and as a stand-alone option'; 'This certificate entitles you to a dollar-for-dollar reduction on your federal tax liability' · Checked October 17, 2026

17. According to the CFPB, many states and local organizations offer programs to help first-time buyers with a down payment or closing costs; to find them, it suggests looking up a HUD-approved housing counseling agency in your area or calling the HOPE Hotline, 24 hours a day, at (888) 995-4673.

    Sources 10 · Where can I find information on programs for first-time home buyers? (last reviewed Sept. 13, 2024): 'Many states and local organizations offer programs to help first-time buyers with a down payment or closing costs'; 'look up a HUD-approved housing counseling agency in your area'; '24 hours a day, seven days a week, at (888) 995-HOPE (4673)' · Checked October 17, 2026

18. According to the CFPB, HUD-approved housing counselors give advice on buying a home, renting and credit issues, among other topics, and offer independent advice, often at little or no cost.

    Sources 11 · Find a Housing Counselor: 'Housing counselors throughout the country can provide advice on buying a home, renting, defaults, forbearances, foreclosures, and credit issues'; 'they can offer independent advice, often at little or no cost to you' · Checked October 17, 2026

19. According to the IRS, the VITA and TCE programs offer free basic tax return preparation to qualified individuals; many sites serve people who generally make about $70,244 or less, although each site may set its own limit; available services can vary by site depending on its certified volunteers; and you find a site with the IRS locator tool or by calling 800-906-9887.

    Sources 12 · Free tax return preparation for qualifying taxpayers (last reviewed Oct. 12, 2026): 'offer free basic tax return preparation to qualified individuals'; 'People who generally make about'; '70,244 or less'; 'individual VITA sites may establish their own'; 'Available services can vary at each site due to the availability of volunteers certified with the tax law expertise required for your return'; 'use the VITA Locator Tool or call 800-906-9887' · Checked October 17, 2026