The Home Advantage Tax Credit program (formerly known as the Mortgage Credit Certificate) is a tremendous benefit offered through the North Carolina Housing Finance Agency. This certificate allows First Time Home Buyers to deduct up to the first $2,000 of their mortgage interest as a tax credit instead of a deduction. A tax credit is far more generous than a tax deduction. For instance, if you’re taxed at a rate of 25% a tax credit is four times more valuable than a deduction.
Example A: $7,500 mortgage interest paid with an income tax rate of 25%
Based on an income tax rate of 25%, a $7,500 tax deduction will reduce your tax liability by approximately $1,875 or (0.25 x $7500).
Example B: $7,500 mortgage interest paid with an income tax rate of 25% and an MCC
Tax credits do not use your income tax rate. Instead, it is a dollar-for-dollar reduction. In this example, the first $2,000 are taken as a tax credit and the remainder ($7,500 – $2,000 = $5500) is reduced based on your income tax rate, as above. The total tax saved is therefore $2,000 + (5,500 x 0.25) = $2,000 + $1,375 = $3,375. Using the MCC reduces your tax liability by an extra $1,500 or $125/month! In this example, that’s an increase in tax savings of 80%!
Get the Home Advantage Tax Credit Program Guide here.