More Tax Breaks for First-time Homebuyers

“The best way to jump-start the housing market is to encourage home purchases by first-time homebuyers,” Governor David A. Paterson said recently.  Following on the heels of the federal government’s two income tax credits for first-time homebuyers, New York State has enacted another tax break in an effort to jump-start the housing market.  The New York State Mortgage Credit Certificate (MCC) will enable first-time homebuyers to claim a tax credit on their federal income tax return equal to 20% of their annual interest costs.  This credit can be used to reduce the homeowner’s federal tax liability, dollar for dollar, every year the mortgage loan remains outstanding.  This means that some form of tax credit will be available for homebuyers even after the government’s much-publicized $8,000 tax credit expires on November 30, 2009.

As an example, for a $200,000 mortgage with an interest rate of 5.5%, the mortgage interest paid in the first year is approximately $10,900.  With the MCC program, 20% of the interest or $2,180 becomes a direct tax credit, and the remaining interest of $8,720 is an itemized deduction.   Homebuyers should be sure to consult a tax advisor to see how these tax credits and deductions will affect their personal income tax situations.

This new tax credit has no effect on the $8,000 first-time homebuyer credit.  With the MCC program, twenty percent of the mortgage interest paid becomes an additional tax credit, and the remaining eighty percent continues to qualify as an itemized tax deduction.  If a homebuyer’s tax liability is less than the MCC credit in any one year, the amount of unused tax credit can be carried forward and used for up to three years.  The MCC Mortgage Interest Credit is computed on federal tax form 8396, and this form must be filed for each year that the credit applies.

Prospective homebuyers should apply for the Mortgage Credit Certificate when they apply for a fixed-interest rate mortgage from a participating lending institution.  The Mortgage Credit Certificate program will be administered by the State of New York Mortgage Agency (SONYMA), a state agency that offers a variety of fixed-rate mortgages.  The applicants will be required to meet SONYMA’s income and purchase price limits, which vary according to household size and the number of units in the house.  For the Capital District area, the income limitation for one- and two-person households is generally $74,100 per year.  Limits are somewhat higher for purchasers of homes in certain targeted areas.

The purchase price limit of a single-family home in the Capital District is generally $273,050.  The credit is also available on two-, three-, and four-family dwellings, with the purchase price limit escalating to $525,100 for a four-family home.

The MCC Tax Credit has generally been praised builders associations, realtors associations and by groups that advocate for increased home ownership for moderate-income families.  Daniel J. Hartnett, President of the New York State Association of Realtors, said, “We applaud Governor Paterson for his vision in creating the MCC Program and for recognizing housing as a primary driver of the state’s economy.  We expect that the MCC will bring additional buyers back to the market and further boost the recovery of the state’s housing market and economy.”


The information in this article is general in nature and therefore may not be appropriate for all taxpayers.  You should consult your tax advisor who is aware of your complete and specific income tax situation.

Richard W. Mulvey, CPA is the proprietor of Olde Green Consulting, an accounting and income tax firm located at 716 Bloomingrove Drive in North Greenbush.  He can be reached at 518-283-1818, or through the firm’s website at   

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