Quick answer
A mortgage credit certificate (MCC), issued by a state or local housing agency, lets you claim a federal tax credit equal to 10%–50% of the mortgage interest you pay each year, claimed on IRS Form 8396. If the certificate rate is above 20%, the credit is capped at $2,000 a year. Unused credit carries forward up to 3 years, and selling within 9 years may trigger a recapture tax. On a $342,000 loan at 7.24%, a 20% certificate is worth about $4,930 in the first year.
Key facts
How a mortgage credit certificate works
A mortgage credit certificate is issued when you buy a home through a participating lender in a state or local MCC program. Each year you own the home and live in it, you multiply the mortgage interest you paid by the certificate rate and claim that amount as a credit on IRS Form 8396.
A credit is worth more than a deduction of the same size: a credit reduces your tax bill dollar for dollar, while a deduction only reduces the income you are taxed on — and only if you itemize. The MCC works whether or not you itemize, which matters if you take the standard deduction.
Federal law lets each program choose a certificate rate from 10% to 50%. Above 20%, a yearly dollar cap applies, so a higher rate isn’t always a bigger credit.
The rules on Form 8396
| Rule | What it means for you |
|---|---|
| Credit = interest paid × certificate rate | Based on interest on the certified loan amount shown on your certificate |
| Rate between 10% and 50% | Set by the issuing agency, printed on your certificate |
| Yearly cap of $2,000 if the rate is above 20% | No cap at or below 20%; credit above the cap is lost, not carried forward |
| Limited to your tax liability | The credit can’t reduce your tax below zero; it isn’t refundable |
| Unused credit carries forward up to 3 years | Credit you couldn’t use because of the tax limit can be used in later years |
| Itemizers reduce their mortgage interest deduction | You deduct interest paid minus the credit, even if part of the credit carries forward |
| Refinancing | The credit continues only if the agency reissues the certificate for the new loan |
A VA certificate of eligibility or an FHA document isn’t an MCC; only a certificate issued under a qualified state or local program counts.
Worked example
$360,000 home (near the US median), 5% down, $342,000 loan, 30-year fixed at an example rate of 7.24%
First-year interest on this loan comes to about $24,652. Here is what certificates at different rates would be worth that year:
| Certificate rate | Interest × rate | Cap applies? | First-year credit | Interest left to deduct if you itemize |
|---|---|---|---|---|
| 10% | $2,465 | No | $2,465 | $22,187 |
| 15% | $3,698 | No | $3,698 | $20,954 |
| 20% | $4,930 | No | $4,930 | $19,722 |
| 30% | $7,396 | Yes | $2,000 | $22,652 |
Above 20% the $2,000 cap bites, so on a loan this size a 20% certificate is worth more than a 30% one. Over the first five years, interest totals about $120,586, so a 20% certificate could be worth about $24,117 in credits — if your federal tax bill each year is at least as large as the credit.
The example also shows why the credit matters to buyers who don’t itemize. First-year interest of $24,652 plus property tax of about $3,204 at the national average ratio comes to $27,856, below the $32,200 standard deduction for a married couple. With no other itemized deductions, that couple gets no tax benefit from the interest — but an MCC still cuts their tax.
Who can get one
MCCs are issued by states and local governments that are allowed to issue tax-exempt mortgage revenue bonds, usually through the state housing finance agency or a city or county program. Because they follow the same federal rules as bond-financed loans, eligibility generally requires:
- First-time buyer status — no ownership interest in a principal residence during the 3 years before the mortgage, waived in targeted areas and once for veterans. See who counts as a first-time buyer.
- Income limits — up to 115% of the greater of area or statewide median family income, lower for one- and two-person households and higher in targeted areas.
- Purchase price limits — up to 90% of the average area purchase price, or more in targeted areas.
- Principal residence — you must live in the home.
Many agencies offer the MCC only alongside their own loans or down-payment assistance, and funding is limited. Your state housing finance agency, listed through the first-time buyer programs guide, can tell you whether a program is open.
Texas example. TSAHC’s certificate rate is 15%; its stand-alone MCC has been discontinued, so the certificate is available only with TSAHC’s down-payment assistance and no-assistance loans, and it is free for Homes for Texas Heroes buyers. TDHCA charges an issuance fee of $400 where its MCC applies. More on Texas programs in the Texas guide.
Recapture if you sell early
How to claim it each year
Apply through a participating lender as part of your purchase, and keep the certificate with your tax records. Each year, file Form 8396 with your return using the interest on your Form 1098, and carry any unused credit forward. If you refinance, ask the agency about reissuing the certificate before you close the new loan, or the credit ends. Use the mortgage payment calculator to see how much interest your own loan generates.
Frequently asked questions
How much is a mortgage credit certificate worth?
The credit is the interest you pay times the certificate rate, from 10% to 50%, capped at $2,000 a year when the rate is above 20%. On the $342,000 example loan, a 20% certificate is worth about $4,930 in the first year.
Is an MCC better than the mortgage interest deduction?
It works on top of it. You claim the credit and, if you itemize, deduct the remaining interest. Because a credit cuts tax dollar for dollar and doesn’t require itemizing, it can be worth more than the deduction alone, especially if you don’t itemize.
What happens if my credit is more than my tax bill?
The credit can’t take your tax below zero. The unused amount carries forward for up to 3 years, except any part above the $2,000 cap, which is lost.
Do I have to repay a mortgage credit certificate?
Not if you keep the home. Selling within 9 years may trigger a recapture tax figured on Form 8828, but none is due on a sale at a loss, and it can’t exceed 50% of your gain.
Can I keep my MCC if I refinance?
Only if the issuing agency reissues the certificate for the new loan. The reissued certificate can’t exceed the original loan balance or credit rate.
Who issues mortgage credit certificates?
State and local governments that can issue mortgage revenue bonds, usually through the state housing finance agency or a city or county program. In Texas, TSAHC and TDHCA both offer them with their home loan programs.
Sources
- Freddie Mac Primary Mortgage Market Survey — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
- US Census Bureau, American Community Survey 2024 1-year — Median value of owner-occupied homes (2024 ACS 1-year)
- IRS Form 8396 — Mortgage credit certificate cap when the rate is above 20%; Mortgage credit certificate: the yearly dollar cap applies when the rate is above; Mortgage credit certificate rate, lowest (Tax year 2025)
- Texas State Affordable Housing Corporation — TSAHC Mortgage Credit Certificate rate (share of mortgage interest) (Oct 28, 2026)
- US Census Bureau, American Community Survey 2024 1-year — Effective property tax rate (median taxes ÷ median home value) (2024 ACS 1-year)
- IRS — 2026 standard deduction, married filing jointly (Tax year 2026)
- 26 U.S.C. 143(d) — MCC and mortgage revenue bond loans: no ownership interest in a principal residence in the past; MCC and mortgage revenue bond income limit (share of the greater of area or statewide median family income); MCC and mortgage revenue bond purchase price limit (share of average area purchase price) (Oct 28, 2026)
- Texas Department of Housing and Community Affairs — TDHCA Mortgage Credit Certificate issuance fee (Aug 17, 2026)
- IRS Form 8828 — MCC recapture tax can never exceed this share of the gain on sale (Rev. November 2024)
- 26 U.S.C. 25: Interest on certain home mortgages
Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.