Yes, Virginia …There Is a New Tax Perk for First-Time Buyers
Owning a home has always come with tax perks, but Virginia has just sweetened this usual “benefit of homeownership” with a new program called the Mortgage Credit Certificate (MCC). Eligible first-time buyers can receive a “dollar for dollar” credit through this program sponsored by the Virginia Housing Development Authority (VHDA).
What this means is that new homebuyers can save thousands of dollars on their taxes – making homeownership truly more affordable! Rather than a tax deduction, buyers will get a reduction in their federal income taxes, up to 20% of the annual mortgage interest. The remaining 80% can still be taken as a tax deduction.
Checking a list and checking it twice
In order to qualify for this credit, borrowers must:
- Work with an approved participating lender to apply for an MCC.
- Be a first-time buyer or have not owned a primary residence within the last three years. (This requirement may be waived if purchasing in a federal targeted area)
- Earn an income at or below VHDA’s maximum household limit for the home’s specific area. For example, in the metro Washington-Alexandria-Arlington statistical area, households with 2 or fewer have to earn $121,900 or less in gross income; for households with 3 or more, must have $142,300 or less in gross income. Check out Income Limits here.
- Select a home to purchase with a sales price that is below the maximum price/loan limits for the specific area. Again, for the metro Washington-Alexandria-Arlington statistical area, maximum price/loan is $500,000. Check price/loan limits here.
- Live in this home as their primary residence.
Even though this program is through the state of VA, borrowers will receive this MCC benefit only for federal income taxes not state income taxes. If a borrower qualifies, the money saved through an MCC is subtracted from what is owned in federal taxes. It is not a refund!
Keep in mind this is not a one-time credit perk, rather borrowers can benefit from the yearly MCC savings for the life of the mortgage, as long as they live in the home. However, if they move or sell the home in the first 9 years, they may face a federal recapture tax.
As always, please check with a tax advisor to see if this program will be beneficial to your particular financial situation. For more information on the program and a list of participating lenders, visit vhda.com. If you have any question, you can always contact us for help!