Kentucky Housing MCC | KHC Mortgage Credit Certificate

Should I overlook the financial benefits of KHC’s Home buyer Tax Credit over fear
of the Recapture Tax Provision?
Absolutely not! For nearly all borrowers, the financial benefits of a “life of loan” federal
tax credit far outweigh the small potential of paying a recapture tax. After all, most
borrowers will not have to pay. Unnecessary fear about recapture among home buyers,
real estate agents, builders, or even mortgage professionals can cause eligible
borrowers to miss out on this valuable benefit. Get the facts before you decide! Consult
a CPA or competent tax professional to discuss the effect of KHC’s Home buyer Tax
Credit on your household’s tax liability now and in the future.
What is the maximum amount of KHC’s Home Buyer Tax Credit annually?
The lesser of 35% of the interest paid on your mortgage loan or $2,000 per year not to
exceed the amount of your federal tax liability.
Who is Eligible to receive KHC’s Home Buyer Tax Credit?
Generally Kentuckians purchasing their first home to owner occupy with a 30 year fixed
rate mortgage. Your KHC approved lender can determine if the purchase price of the
home and income of your household are within eligible limits. These limits vary by
county and household size. There are also options for repeat home buyers in certain
counties, contact a KHC Approved Lenders for full program eligibility details.
What is KHC’s definition of first-time homebuyer?
A first-time homebuyer is someone who has not had ownership interest in a home within the past three years.
Will I lose my KHC Home Buyer tax Credit if I refinance my mortgage?
No, but you will need to notify KHC of your refinance within 12 months of the closing by
submitting an application for reissuance. Th

is can be found on KHC’s website,, Lender Resources, under KHC Home Buyer Tax Credit.
What triggers the Federal Recapture Tax?
All three of these criteria must be met for a borrower to owe recapture tax:
1. You must sell your home within 9 years.
2. You must make a net gain from the sale of your home.
3. You must be earning significantly more income than when you bought the home.

What is the Federal Recapture Tax?
It’s a federal tax that a borrower may be required to pay from the net profit they receive
from the sale of their home. If they have to pay Recapture, it would be due when they
file their federal income tax for the year in which they sell their home. The maximum
recapture tax is 6.25% of the original principal balance of the loan or 50% of the gain on
the sale of the home, whichever is less.
Can KHC or the lender tell me what my recapture tax will be?
No, it would be impossible to predict your tax liability, if any; since it is based on your
situation at the time you sell your home. It depends on your future income, family size,
and the amount of net profit on the sale of your home. In addition, neither KHC nor your
lender is qualified to interpret tax regulations. You should take your Notice of Federal
Recapture Tax form (issued at closing) and your Closing Disclosure to a competent tax
professional or CPA if you met the three triggers above

Home Buyer Tax Credit


If you plan on buying a home, then consider taking advantage of KHC’s Home Buyer Tax Credit. The tax credit provides a dollar for dollar reduction of your federal income taxes, every year you occupy the home. The Tax Credit is equal to 35 percent of the annual mortgage interest paid in a calendar year.

How to Apply?

Contact a KHC Tax Credit Approved Lender to start the process.

Applications are accepted by a statewide network of local lenders. Home Buyer Tax Credit is available through FHA, VA, RHS and Fannie Mae, and Freddie Mac Conventional 30-year mortgages at a fixed interest rate. With a Tax Credit from KHC, you will get a direct dollar-for-dollar reduction in your federal income taxes worth 35 percent of the mortgage interest you pay on your mortgage each year. You can still claim the remaining 65 percent of the mortgage interest as a tax deduction.



What is a Mortgage Credit Certificate?

A  Kentucky Houising (KHC)( Mortgage Credit Certificates (MCC) reduces the amount of federal income tax you pay, giving you more available income to qualify for a mortgage loan.  MCCs are NOT mortgages.  They are tax credits that put extra cash in your pocket each month, so you can more easily afford a house payment.

That means fewer tax dollars will be withheld from your regular paycheck, increasing your take-home pay.  The federal government allows every homeowner an income tax deduction for all the interest paid each year on a mortgage loan.  But an MCC gives you a tax credit of 25 percent (not to exceed $2,000).  You can still deduct the remaining 75 percent interest on your income taxes.

A tax credit is not the same as a tax deduction.  A tax deduction reduces the portion of your income that is taxed, so you pay less.  A tax credit is a direct, dollar for dollar reduction in the total tax you owe.  The MCC is effective for the life of the loan as long as you live in the home.  If you sell your home in the first nine years of ownership, you may be subject to Federal Recapture Tax.

MCC Brochure

Eligibility to apply

You may qualify for the program if:

  • You are purchasing your first home.
  • You have not owned a home in the last three years.
  • The home you wish to buy is located in an area of the state which is exempt from the first-time home buyer rule.  (Your local lender can determine those “targeted areas.”)


You must meet Kentucky Lender , KHC, FHA, VA, RHS, Fannie Mae, and/or Freddie Mac standards for creditworthiness.  You must occupy the property.

It cannot be used for business, commercial, or rental purposes.

Applicants need a sales contract with a legal description of the property, a $500 MCC fee, and copies of federal income tax returns for the past three years.

How to Apply?

Applications are accepted on a first-come, first-served basis by a Kentukcy statewide network of local lenders.  MCCs are available with Kentucky FHA, VA, RHS, Fannie Mae, and Freddie Mac Conventional 30-year mortgages at a fixed-rate.  MCCs cannot be used with KHC’s Mortgage Revenue Bond program, but may be used with KHC’s Fannie Mae Cash Window program.  Your local lender will submit your loan application and notify you as to whether your application has been accepted.

With an MCC from KHC, you will get direct dollar-for-dollar reduction in your federal taxes worth 25 percent of the interest you pay on your mortgage each year.  You can still claim the remaining 75 percent of the interest as a tax deduction.

MCC Credit Certificate is offered in the following areas in Kentucky:

Kentucky MCC Credit Certificate Mortgage Limits by County







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