How An MCC Lowers Your Tax Bill On A DSM Home

Looking for a real way to stretch your budget on a Des Moines home? If you qualify, a Mortgage Credit Certificate can lower your federal tax bill each year you pay mortgage interest, which can make monthly housing costs feel more manageable. You will see what an MCC is, how it works in Iowa, who qualifies in Polk County, and the steps to apply before you close. You will also learn key rules like the $2,000 cap and recapture. Let’s dive in.

Mortgage Credit Certificate basics

A Mortgage Credit Certificate is a federal tax credit issued by a state housing agency that turns a portion of the mortgage interest you pay into a dollar-for-dollar reduction of your federal income tax. You claim it each year you occupy the home as your primary residence and pay interest. The credit is calculated using the interest you paid multiplied by the certificate’s credit rate, and you claim it on IRS Form 8396. You can review how the credit works in IRS Publication 530 and this overview from NCSHA.

Two important features to know:

• The credit is nonrefundable, so it can reduce your federal tax to zero but not below. If you cannot use the full amount in a year, you may carry it forward for up to three years. IRS Publication 530
• If the MCC credit rate is over 20 percent, the annual credit you can claim is capped at $2,000. IRS Publication 530

How the credit lowers tax

Step-by-step mechanics

• Total your annual mortgage interest paid on the qualifying loan.
• Multiply that amount by your MCC credit rate to get your mortgage interest credit for the year.
• If your rate is over 20 percent, the allowable credit is capped at $2,000. Any remaining interest may still be deductible if you itemize, but you must reduce your mortgage interest deduction by the credit you claim.
• File Form 8396 with your federal return to claim the credit. IRS Publication 530

Simple DSM example

• Example: $200,000 mortgage, $7,000 interest in year one, 20 percent MCC rate.
  • Your MCC credit equals $7,000 × 20 percent = $1,400. That $1,400 directly reduces the federal tax you owe that year. If you itemize, you may still deduct the remaining $5,600 of mortgage interest. See similar math in NCSHA’s MCC Q&A.
• If your MCC rate were 50 percent and the calculated credit exceeded $2,000, your allowable credit would be capped at $2,000 for the year. IRS Publication 530

Impact on qualifying and cash flow

• Lenders may treat part of your expected MCC benefit as additional qualifying income, which can help you qualify for a larger loan. Treatment varies by lender. See an example of this approach in this MCC guide.
• The credit lowers your federal tax owed, which can increase your after‑tax cash available for housing costs each year you pay interest. NCSHA overview

Iowa availability and eligibility

Who issues MCCs in Iowa

In Iowa, the Iowa Finance Authority administers the program, and you apply through a participating lender. You must request the MCC before your mortgage closes. Learn more on the Iowa Finance Authority’s MCC page.

Funding can be limited or paused. Always check current availability with IFA or a participating lender early in your home search. IFA MCC page

Basic eligibility in Polk County

• You must use the home as your primary residence and meet income and purchase price limits set by IFA.
• You must obtain the MCC before closing. You cannot add it after you buy.
• Some manufactured homes may be eligible. Refinances are not eligible unless the issuer reissues an MCC under specific rules.
• See the state rules on eligible borrowers here: Iowa Admin Code 265-10.3 and application timing here: Rule 265-10.2.

Rules and risks to know

Annual cap and carryforward

If your MCC rate is more than 20 percent, the credit you can claim each year is capped at $2,000. If you cannot use the full credit because your tax is too low, you may carry the unused portion forward for up to three years. IRS Publication 530

Filing requirements

To claim the credit, you must file IRS Form 8396 with your federal return. If you itemize on Schedule A, reduce your mortgage interest deduction by the credit you claim. The MCC affects federal tax. Ask an Iowa tax professional whether it changes anything on your Iowa return. IRS Publication 530

Refinancing or selling within nine years

Refinancing may require the MCC to be reissued to keep the benefit. If you sell or transfer the home within nine years, you could owe a recapture tax depending on your income and gain at the time of sale. The calculation and exceptions are detailed in the IRS Form 8828 instructions. Talk with a tax professional for a personalized estimate before selling within nine years.

Steps for Des Moines buyers

• Step 1: Ask your lender during preapproval if they participate in the IFA MCC program and whether funds are available for Polk County. MCCs must be requested before closing. Rule 265-10.2
• Step 2: Confirm your eligibility using IFA’s income and purchase price limits and check if your property type qualifies. Iowa Admin Code 265-10.3
• Step 3: Plan your taxes. Estimate your first-year MCC benefit using projected interest and decide how it interacts with itemizing. IRS Publication 530
• Step 4: Coordinate underwriting. Ask whether your lender can count part of the expected MCC benefit as qualifying income and whether adjusting your W-4 makes sense. MCC guide example
• Step 5: Understand recapture. If you might sell within nine years, review potential recapture with a tax preparer. IRS Form 8828 instructions

If you want trusted local guidance on homes that fit MCC boundaries, our team can help you confirm program fit while you shop. Always verify current MCC funding and lender participation with the Iowa Finance Authority.

Ready to put this to work on a DSM home search? Reach out to Boutique Real Estate (Iowa) for a local plan that aligns your financing, timeline, and neighborhood goals.

FAQs

How an MCC affects monthly payments in Des Moines

• The MCC does not lower your mortgage payment directly, but it reduces your federal tax owed, which can improve your monthly cash flow and may help you qualify for a larger loan. NCSHA overview

Getting an MCC on a Polk County mortgage

• You must apply through a participating lender before closing and meet IFA income and purchase price limits; funding and lender participation can change, so check availability early. Rule 265-10.2

Whether the MCC is refundable for Iowa buyers

• It is a nonrefundable credit that reduces your federal tax dollar-for-dollar; if unused, you may carry it forward for up to three years, subject to limits. IRS Publication 530

What happens to the MCC if you refinance or sell

• Refinancing may require reissuance to keep the benefit, and selling within nine years can trigger recapture tax depending on your income and gain at sale. IRS Form 8828 instructions