Mortgage Credit Certificate (MCC)
Information for buyers and lenders
A Mortgage Credit Certificate (MCC) gives homebuyers in San Francisco a tax credit of 15% their mortgage interest.
Your tax preparer calculates the annual credit amount, and you apply this credit directly to your income tax liability every year.
By using an MCC, you can:
- Qualify for a bigger mortgage loan
- The tax credit is considered additional income in the qualifying ratio.
- Change your withholding to decrease your tax liability.
Apply for an MCC through your lender.
How an MCC works
An MCC allows the holder to use 15% of the total mortgage interest amount as a tax credit.
The tax credit has to be recalculated every year, because the interest you owe decreases every year.
The following is an example with a mortgage pricipal of $300,000 and an interest rate of 3.75%. MOHCD is not a tax advisor. Please work with a tax preparer for your own financial situation.
|No MCC||With MCC|
|First Mortgage Amount||$300,000|
|Mortgage Interest Rate||3.75%|
|Monthly Principal (P)||$451.85|
|Monthly Interest (I)||$937.50|
|MCC rate||-||x 15%|
|Monthly credit amount||-||$140.63|
|Effective Monthly P+I||$1,389.35||$1,248.72|
|Effective Interest Rate||3.75%||2.90%|
|Tax credit for year||-||$1,687.50|
There is a nonrefundable fee when applying for the MCC. Your lender will determine your eligibility before applying. See the MOHCD program services fees »
Targeted Areas (with higher income and purchase price limits)
San Francisco has identified specific census tracts as “Targeted Areas”. These Targeted Areas are meant to encourage homeownership in specific neighborhoods. Homes in these areas have higher limits for purchase price and applicant income. Buyers for homes in these areas also don't need to be a first-time homebuyer.
The following census tract numbers are Targeted Areas:
- First-time homebuyers for properties in Non-Target Areas: No member of a household must have had any ownership interest in a residential unit for the last three years.
- Buyers of properties in Targeted Areas don't need to be first-time homebuyers.
- Completed homebuyer education from Homeownershipsf.org
- First mortgage: Must be used with 30-year fixed-rate mortgages. Can be layered with other MOHCD programs.
- MCC cannot be used with bond-backed loans. Examples are California Housing Finance Authority (CalHFA) or Cal Vet bond loans.
- Maximum Income Limits: Income limits differ between properties in Targeted and Non-Target Areas
Non-Target Area Targeted Area 1-2 people $145,066 $157,920 3+ people $166,660 $184,240
- The combined income of all household members 18 years or older, who will be living in the property, must be included in the determination of income. The combined household's income must be projected as an annual income. It should be assumed that the current income would continue for the next 12 months. Calculate your household income »
- Occupancy: The property must be owner-occupied during the life of the MCC.
- Eligible Household Member: An eligible household member must either be:
- On title of the property. All spouses or domestic partners must be included in the household and must appear on the application and title.
- Listed as a dependent on tax returns. All household members who are under 18 years of age must be the legal dependent of an adult household member, as listed on the two most recent tax returns. An unborn child will be not counted as a household member. Elderly adult household members may be considered as dependent as long as they are listed as a dependent on the two most recent tax returns. All income from dependent adults and children must be included in the total household income. Spouses and Domestic Partners are not considered dependents.
- Property type: New or existing single-family homes of any type in San Francisco are eligible. This includes:
- Single-family detached homes
- Purchase price limits: Purchase price limits differ between properties in Targeted and Non-Target Areas. There is no difference between new or resale properties for 2018.
Non-Target Area Targeted Area $625,764 $764,823
Recapture tax (when selling)
When selling a home that’s been using MCC, owners must pay federal taxes on a portion of the home’s appreciation if:
- Your income increases significantly (more than 5% a year) during the life of the loan, and
- You sell the home within 9 years, and
- There is a gain from the sale
For the tax year you sell your home, have your tax preparer:
- Download the recapture tax worksheet to calculate your recapture tax
- Submit IRS Form 8828 with your 1040
Current MCC holders who refinance their mortgage, must also have their MCC reissued.
MCC Manual and Forms
Training for Participating Lenders
Mortgage Loan Officers (MLO) or mortgage brokers who would like to become participating lenders for MOHCD's homeownership programs, including DALP, MCC and TND must complete the required training and pay the required fee. Each individual MLO or mortgage broker must complete the training every year.