New York Gov. David A. Paterson announced last week that New York will offer a federal income tax credit to first-time home buyers to encourage home sales in the state.
The New York State Mortgage Credit Certificate (MCC) will enable first-time home buyers to claim a tax credit equal to 20% of their annual mortgage interest costs. By using the tax credit, the average home buyer could potentially save about $1,500 each year, according to the MCC's estimates. The program will effectively extend – and, in some cases, improve upon – the federal government's $8,000 First-Time Homebuyer Credit enacted as part of the American Recovery and Reinvestment Act of 2009, which expires on Nov. 30.
"The best way to jump-start the housing market is to encourage home purchases by first-time home buyers," Paterson said. The MCC will mean "some form of federal tax credit will be available for home buyers even after the federal government's tax credit program expires in November," he added.
With an MCC, 20% of the amount paid in mortgage interest becomes a tax credit that can be deducted, dollar for dollar, from a homeowner's federal income tax liability. The remaining 80% of the mortgage interest continues to qualify as an itemized tax deduction, as long as there is sufficient federal tax liability. The MCC will be administered by the State of New York Mortgage Agency (SONYMA), a state agency that offers a variety of fixed-rate mortgages tailored for first-time home buyers.
MCC applications are expected to be available at participating lenders by early September. In addition, home buyers who have already obtained a mortgage commitment can apply at their bank for an MCC if they have not yet closed on their new home. SONYMA anticipates that MCCs will be used by as many as 700 borrowers in 2009.