When you’re not sure how to save money on your house, there are several options. These include tax deductions, and mortgage credit certificates. But what’s the difference between a mortgage credit certificate and a tax deduction? That’s an important question, and one you want to be sure you get answered so you know what you need to do to save the most money on your home. Tax breaks are very important once you get into your home and have completed your purchase of it, but a mortgage credit certificate (MCC) could be what’s standing between you and actually getting into that home. With that being the case, it’s worth exploring both options so you have a plan for buying your house and saving money on it as the new owner.
Can an MCC help you buy your house?
One of the ways you can save money on your taxes as a homeowner is through a Mortgage Credit Certificate. These certificates are designed to help homeowners who make less money than they need to in order to buy the home that they want. The mortgage interest they pay will be credited back to them and used as income for purposes of qualifying for the mortgage, which can raise the amount they make just enough to let them get their mortgage approved. These credits are designed for lower income borrowers who want to buy a home but may not be quite able to do it on their own, so they can get out of renting. Often, their mortgage payment will be less than their rent would have been, helping them financially.
What if you don’t make enough money to qualify?
When buying a house you love becomes difficult because of the lack of income, that’s often where an MCC comes in. There is a concern, though, with people who have a very low income. The MCC is generally designed for people who make close to what they need to get into a home, but only need a little bit of extra help. Since the mortgage interest that is credited back to them as income is not a large sum, they won’t get an excessive amount of help from it. In some cases, their income is still not enough to help them qualify even with the credit. For buyers in that situation, it may be possible to get other assistance programs or to find a house that costs less, so their income plus the MCC will be enough to let them buy a home.
How do tax breaks for homeowners work?
You can get several tax breaks when you own a home, and it’s important to know what deductions are right for you. Once a person owns a home, they can deduct a lot of things that a renter wouldn’t have and wouldn’t be able to get credit for. That’s important, since homeowners also have expenses that are specific to them and not seen with renters. Each year, homeowners can write off things like the points they paid, their mortgage interest, private mortgage insurance in some cases, and other fees and costs that come along with owning a home. Depending on their specific circumstances and any upgrades they have made, there might be other tax breaks they can receive, as well.
Is a deduction the same as a credit?
When purchasing a home and looking at the tax breaks you may get, it’s important to remember that a deduction isn’t the same as a credit. Deductions reduce the amount of tax you pay, but they aren’t dollar for dollar. Credits give you credit off of your taxes for that amount of money, which is often a better deal. Both deductions and credits are good, because they lower your tax burden and can increase the size of your refund, but they definitely aren’t comparable in their value to the taxpayer. If given the choice, it’s generally always better to take a credit instead of a deduction, so you can get the most benefit possible. That way you’ll keep your tax burden lower.
Do you need to talk with a CPA?
It’s probably not necessary to work with a CPA or a tax advisor if your situation is pretty standard. If you own more than one home, you run a business, or you have a lot of deductions and credits you need to take, though, you may find some benefit in talking with a professional who can help make sure you file correctly and get all the tax breaks, deductions, and credits you deserve. That way you don’t have to worry about making a mistake on your return, which could be costly. For peace of mind, having someone else do your taxes can help.
Are these options available everywhere?
Options for the MCC are not available everywhere. Some states have different types of programs based on what they offer, so you want to make sure you understand what you can qualify for in your area. As for the tax deductions and credits, those are based on federal income tax, and they are available everywhere. If you own a home in the United States, you will get tax breaks for things like certain types of upgrades, mortgage interest, and other items. Make sure you work through your tax return carefully, so you don’t miss any valid options for saving money or increasing the amount of your refund.
