Mortgage Tax Credit Presented by Cleo Evans Mortgage

Mortgage Tax Credit Presented by Cleo Evans

Mortgage Tax Credit l Commonly known as Mortgage Credit Certificate (MCC). There are during tax year, end of tax year, and retention benefits. Principal residence l OHFA offers two tax credit programs. l l Mortgage Tax Credit Basic Program Market Rate Program w/MTC Plus

Mortgage Tax Credit l l l An MCC is only issued through state or local government entities during the process of that individual purchasing a principal residence. Its creation was intended to help individuals afford home ownership. By allowing part of their home mortgage interest to be claimed as a credit.

Discussion l Lesson 1: End of tax year benefit l l Lesson 2: During tax year benefit l l How credit is used to provide income during year. Lesson 3: Reissuance l l How credit is used at year’s end. OHFA will reissue MTC/MCC after refinance. Lesson 4: OHFA MTC Programs l Difference in programs so lender and homebuyer both benefit

Lesson 1: End of Year Benefit l l Percentage of mortgage interest on Form 1098 as credit. Use IRS Form 8396 to calculate credit amount. Reduce home mortgage interest for itemization by credit amount. Form 1040/1040 NR, lines 53 and line 50 respectively. Source: Publication 530: Tax Information for Homeowners

Lesson 1: Year End Calculation l l l Mortgage rate on certificate Form 1098 on line 1. MTC/MCC rate line 2. Calculated amount line 3. $2, 000 limit if credit rate > 20%.

Lesson 1: Federal Tax Returns l l l Form 8396 Form 1040 Schedule A

Lesson 1: End of Year Benefit l l l Direct mortgage interest credit to reduce tax liability. Based on mortgage paid during tax year on Form 1098 (first mortgage). Limited to $2, 000 for credit > 20%. Reduce mortgage interest by credit amount for Schedule A. Can still use credit when using standard deduction.

Lesson 2: During Tax Year l l l Increase disposable income by using the tax credit during the year. Adjust W-4 withholdings. IRS withholdings calculator.

Lesson 2: Withholdings l l Credit is based on mortgage interest paid. Adjust W-4 to determine number of allowances. Various factors involved when making adjustments. Seek help from the IRS or tax professional. Interest MTC Rate Monthly Bi-Weekly $ 7, 946. 39 20% $ 1, 589. 28 $ 132. 44 $ 61. 13 $ 30. 56 25% $ 1, 986. 60 $ 165. 55 $ 76. 41 $ 38. 20 30% $ 2, 000. 00 $ 166. 67 $ 76. 92 $ 38. 46 40% $ 2, 000. 00 $ 166. 67 $ 76. 92 $ 38. 46 Form W-4: Employee’s Withholding Allowance Certificate http: //www. irs. gov/pub/irs-pdf/fw 4. pdf IRS Withholding Calculator : http: //www. irs. gov/Individuals/IRSWithholding-Calculator

Lesson 2: During Tax Year l l l Similar to end of year credit, credit is based on mortgage interest paid on first mortgage. Reduce federal taxes, which increase disposal income. Again, every person’s tax situation is different so we recommend they talk to a tax professional.

Lesson 3: Reissuance l l Another benefit to a MTC/MCC borrower is that OHFA will reissue their certificate if they refinance. It is the borrowers responsibility to send this information after they refinance. One year from date of refinance to submit documentation. This certificate is not transferrable.

Lesson 3: Reissuance For OHFA to reissue the MCC, the borrower will need to supply OHFA with: l l l l Copy of original certificate or reissued certificate Copy of new note Copy of original note (when they first received certificate) Copy of most recent year's federal tax return Copy of new Settlement Statement Current telephone number $55 reissuance fee (cashier’s check or money order)

Lesson 3: Reissuance l l Higher loan amount then calculate what % of mortgage interest can be claimed. Smaller than indebtedness amount then claim full mortgage interest on Form 8396. Source: IRS Publication 530 “Tax Information for Homeowners, page 9

Lesson 3: Reissuance l l Allows borrower to retain their MTC/MCC after refinancing. Meet one year OHFA time frame. New loan amount higher than original indebtedness limits % of mortgage interest claim. Seek professional advice.

Lesson 4: OHFA MTC Programs l Two MTC/MCC Programs: l l MTC Basic Market Rate w/MTC Plus Both offer different credit rates. Both have OHFA fees.

Lesson 4: MTC/MCC Plus l l l All our Market FTHB loans are now available with MTC/MCC. Second mortgage products plus closing cost assistance are available too. Homebuyer would get a 40% tax credit. Same fees as regular Market rate program except additional $500 fee: Lender gets $250 (optional) and OHFA $250. OHFA sets Interest rates US Bank service loans.

Lesson 4: MTC/MCC Plus

Lesson 4: MTC/MCC Plus

Lesson 4: MTC/MCC Basic l l l Used in conjunction with lenders first mortgage product. Lender sets interest rate. Excludes any additional OHFA products: second mortgages and/or closing cost assistance. Offers 3 credit rate amounts: 20% non-target, 25% target, and 30% real estate owned. OHFA $500 MTC/MCC fee

Lesson 4: MTC/MCC Basic/Plus l l l Use lender online to reserve, and submit compliance packages. MTC/MCC Plus submit commitment package within 25 days; however, basic has 60 days. MTC/MCC Plus requires homebuyer education. Commitment approval letter is required before loan close. OHFA purchase package approval required before servicer purchase or certificate issued.

Summary of Training l l l MTC/MCC has multiple benefits. Credit to reduce tax liability. End of the year or during the year benefit. borrower can retain MTC/MCC after refinance. Lender can utilize with company products and mortgage rates. Utilize OHFA MTC/MCC products and rates. l l Second mortgage Closing Cost Assistance

Assessment and Evaluation l Which credit rate calculated mortgage interest amount is limited? A. B. C. D. 20% calculated credit is 2, 025 25% calculated credit is 2, 025 30% calculated credit is 2, 025 40% calculated credit is 2, 025

Assessment l l B, C, and D Credit rates > than 20% are limited to $2, 000

Assessment l Paid $10, 250 in mortgage interest, so what amount can be claim on Schedule A? A. B. C. D. 20% calculated credit as 2, 050 = 25% calculated credit as 2, 562 = 30% calculated credit as 3, 075 = 40% calculated credit as 4, 100 =

Assessment A. B. C. D. 8, 200 Can take full credit amount 20% rate 7, 688 Limited to 2, 000

Assessment 1. OHFA’s MTC/MCC Basic requires homebuyer education? l True or False 2. MTC Basic and Market Rate w/MTC Plus can use OHFA DPA and CCA? l True or False

Assessment 1. False Only our Market Rate w/MTC Plus requires homebuyer education because the MTC/MCC Basic has the lender rates and products. OHFA only issue a credit. 2. False Only our Market Rate w/MTC Plus can use additional OHFA products.

Assessment 1. Homebuyer’s can register to get a MTC/MCC after they have purchased their home? l 2. MTC Programs are not subject to Recapture? l 3. True or False MTC/MCC can be used as income? l True or False

Assessment 1. False During the purchase of their principal residence 2. False All MTC/MCC are subject to recapture 3. True MTC/MCC can be a source of income by way of W-4 withholdings.