First-Time Homebuyer in Texas? This Tax Credit Could Save You Thousands
What if buying a home could actually help you pay less in federal income taxes every year?
Not just by being a potentially income deductible amount, but a technical credit to you at tax time? For qualifying Texas homebuyers, that’s exactly what the Mortgage Credit Certificate (MCC) offered through the Texas State Affordable Housing Corporation (TSAHC) can do.
Most buyers have heard of down payment assistance. But there’s another benefit that often gets overlooked: a federal tax credit that can continue saving you money long after you’ve moved into your new home.
At Legend Lending, we’re a TSAHC-approved lender, and this is one of the programs we help buyers explore when putting together their financing options.
What Is a Mortgage Credit Certificate?
An MCC allows eligible homeowners to receive a federal income tax credit equal to 15% of the qualifying mortgage interest they pay each year.
Unlike a tax deduction, which reduces your taxable income, a tax credit directly reduces the amount of federal income tax you owe.
Let’s look at an example.
Suppose you purchase a home with a $300,000 mortgage at a 6.5% interest rate.
During your first full year of homeownership, you might pay approximately $19,400 in mortgage interest.
Here’s what that could mean:
Mortgage interest paid: $19,400
MCC tax credit at 15%: $2,910
Potential annual federal tax savings: $2,910
That’s the equivalent of approximately $242 per month in tax savings!
And here’s the exciting part: This isn’t just a first-year benefit.
You may continue receiving the credit each year that you remain eligible, live in the home as your primary residence, and maintain the qualifying mortgage.
The actual credit you can use depends on your federal income tax liability. Unused credits may be carried forward for up to three years, subject to IRS rules.
Want to see what the savings could look like for your mortgage?
What Qualifies You as a First-Time Homebuyer?
This is where many people are pleasantly surprised.
You don’t have to be buying your very first home to qualify as a first-time homebuyer.
Under TSAHC’s MCC program, a first-time homebuyer is generally someone who has not owned or held an ownership interest in a primary residence during the previous three years.
For example:
Never owned a home? You may qualify.
Sold your previous home four years ago and have been renting since? You may qualify.
Owned a home years ago but haven’t owned a primary residence during the last three years? You may qualify.
There are also exceptions to the first-time homebuyer requirement for qualified veterans and buyers purchasing in certain federally designated targeted areas.
Are There Income Limits?
Yes, but don’t assume you earn too much before checking.
TSAHC’s MCC program has income and home purchase price limits that vary depending on the county, household size, and whether the property is located in a designated targeted area.
For MCC eligibility, TSAHC generally considers the income of the individuals who will be on the deed, which may be different from the income used to qualify for the mortgage.
This is one reason it’s worth reviewing your situation with an approved lender rather than assuming you don’t qualify.
Can You Combine the MCC With Down Payment Assistance?
Yes! And that’s where this program can become even more valuable.
TSAHC offers qualifying homebuyers down payment assistance through its homebuyer programs.
Depending on the available program, assistance may come in the form of a grant or a forgivable second mortgage.
Eligible buyers can combine the MCC with qualifying TSAHC financing, potentially receiving assistance with their purchase and an ongoing federal income tax credit.
One important detail: TSAHC no longer offers the MCC as a stand-alone product. It must be paired with an eligible TSAHC program, including available options that provide no down payment assistance.
So even if you’ve saved enough money for your down payment, it’s still worth exploring whether an MCC makes sense.
What Happens If You Sell Your Home? Understanding the Recapture Tax
There is one important tax provision buyers should know about, called the federal recapture tax.
Although the name sounds intimidating, selling your home does not automatically mean you’ll owe this tax.
Recapture generally becomes a possibility only when all three of these things happen:
You sell your home within the first nine years.
You make a gain on the sale.
Your income at the time of sale exceeds an IRS-adjusted income threshold.
Here’s something particularly important to understand.
The income threshold isn’t based simply on how much you earned when you purchased the home.
It’s calculated using the applicable program income limit established at the time of purchase, with adjustments over time.
For example, imagine you earn $80,000 when purchasing your home, but the applicable starting income threshold for recapture purposes is $100,000.
Your income could increase considerably before you exceed the recapture threshold.
And even if your income eventually exceeds that threshold, the amount of any recapture tax depends on several additional factors, including your gain from selling the home.
After nine full years, the federal mortgage subsidy recapture tax no longer applies.
The takeaway? Don’t assume that selling your home within nine years means you’ll have to repay your tax benefits. The actual rules are much more specific.
You can read more about the requirements directly from the IRS Recapture Tax Information (Form 8828).
A Few Other Things Worth Knowing
You must apply before closing. You cannot purchase a home and then decide to add the MCC afterward.
There may be a program fee. TSAHC generally charges a $400 MCC issuance fee, although eligible Texas Heroes may qualify for a waiver.
Your tax situation matters. Since this is a federal income tax credit, your actual benefit depends on your individual tax circumstances.
Refinancing doesn’t necessarily mean losing your MCC. TSAHC allows eligible homeowners to apply for a reissued certificate when refinancing, subject to program requirements.
Why Work With Legend Lending?
Not every mortgage lender participates in TSAHC’s programs.
At Legend Lending, we’re an approved TSAHC lender, and we believe understanding your options should happen before you ever complete a mortgage application or authorize a credit check.
We’ll talk about your income, homeownership history, available down payment, and financial goals to determine which programs may make sense for you.
We’ll also compare the available financing options, because a tax credit or down payment assistance program isn’t automatically the best choice for every borrower.
Sometimes the smartest financing decision comes from looking beyond the interest rate and understanding the bigger financial picture.
Let’s Start With a Conversation
Whether you’re buying your very first home or returning to homeownership after a few years, you may have more options than you realize.
Before you start shopping for homes, let’s see what programs you might qualify for.
Sonya Bersani | Legend Lending
Mortgage Banker | 22+ Years of Experience
NMLS #140571
Disclaimer: MCC eligibility, program availability, credit rates, fees, income limits, and loan terms are subject to change. Examples are illustrative and do not guarantee tax savings. The MCC is a nonrefundable federal income tax credit, and unused credits may be subject to carryforward limitations. Federal recapture tax may apply to certain sales or transfers within nine years. Consult a qualified tax professional regarding tax credit eligibility, potential recapture liability, and your individual circumstances.
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