The Home Advantage Tax Credit program (formerly known as the Mortgage Credit Certificate) is a benefit offered through the North Carolina Housing Finance Agency. Qualified borrowers can 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 example, if you are taxed at a rate of 25% a tax credit is four times more valuable than a deduction.
Without the Home Advantage Tax Credit: $7,500 mortgage interest paid with an income tax rate of 25%
With 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).
With the Home Advantage Tax Credit: $7,500 mortgage interest paid with an income tax rate of 25% and the Home Advantage Tax Credit
Tax credits do not rely on your income tax rate. Instead, it is a dollar-for-dollar reduction of your tax liability. In this example, the first $2,000 are taken as a tax credit and the remainder ($7,500 – $2,000 = $5500) can used as a deduction (see previous example). The total potential tax saved is therefore $2,000 + (5,500 x 0.25) = $2,000 + $1,375 = $3,375. Based on a 25% taxable rate, using the Home Advantage Tax Credit reduces your tax liability by an extra $1,500 or $125/month! That extra money can be used to calculate how much you can borrow, and could make the difference between a loan approval and a denial.
Get the Home Advantage Tax Credit Program Guide here.