Mortgage Credit Certificates (MCCs)

If you reside in one of the few states or localities that have chosen to issue MCCs to lower-income homebuyers and you obtain a certificate, then you can claim a tax credit (rather than a deduction) based on the amount of interest you paid.

Generally, credits are more valuable than deductions because they reduce your taxes dollar-for-dollar, while deductions reduce your taxes by only a percentage of the amount in question (i.e., if you're in the 25 percent tax bracket, a deduction reduces your taxes by 25 percent of the dollar amount of your mortgage interest).

Even within the localities that issue MCCs, these certificates are generally available only to first-time homebuyers whose income is below the median income for the area where they live. If you are eligible for the credit, it must be claimed on IRS Form 8396, Mortgage Interest Credit, which must be filed with your Form 1040.

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