Michigan First-Time Home Buyer Tax Credit: Qualifying and Claiming

Michigan’s version of a first-time home buyer tax credit is the Mortgage Credit Certificate, a program run by the Michigan State Housing Development Authority (MSHDA) that lets qualifying buyers claim a federal income tax credit equal to 20 percent of the mortgage interest they pay each year for the life of the original loan.¹ The older federal first-time homebuyer credit under 26 U.S.C. § 36 expired in 2010 and does not apply to current purchases, so the MCC is the credit Michigan buyers actually work with today.²

What the Credit Is Worth

The MCC converts part of your mortgage interest into a dollar-for-dollar reduction of your federal tax bill. Michigan’s certificate rate is 20 percent.¹ Pay $18,000 in interest during the year and your credit is $3,600 off the tax you owe, not just off your taxable income.

Federal law caps the annual credit at $2,000 when a state’s certificate rate is higher than 20 percent.³ Because Michigan sits at exactly 20 percent, that cap doesn’t apply here. You claim the full 20 percent of your interest no matter how large the resulting number.

The credit is non-refundable. It can zero out your federal income tax, but it can’t produce a refund by itself. Anything you can’t use in the current year carries forward for up to three tax years, with the current year’s credit applied first and older carryovers next.³ A low-tax year right after you buy doesn’t necessarily waste the benefit.

Who Qualifies as a First-Time Buyer

You count as a first-time buyer if you haven’t held an ownership interest in a home during the three years before you buy the new one. If you’re married, your spouse has to meet the same test. The home must be your primary residence. Repeat buyers can use the program only if the property sits in a MSHDA-designated targeted area, which covers many rural and economically distressed communities across the state.¹

Income Limits

MSHDA sets household income ceilings that vary by county and household size. In many counties the limit runs $114,720 for a one- or two-person household and $133,840 for three or more people, with higher-cost counties set higher. Barry County, for example, allows $124,320 and $145,040.⁴ These numbers get updated, so check the current MSHDA table for your county before assuming you’re in range.

Purchase Price Limit

The maximum home price is $544,233 statewide as of May 2025, and that ceiling applies in every county.¹

Homebuyer Education

Every buyer using a MSHDA product has to finish an approved homebuyer education class and produce the certificate. MSHDA accepts Fannie Mae HomeView, Freddie Mac CreditSmart, eHome America, and Framework, along with in-person or online counseling from a HUD-approved agency.⁵ The certificate is good for 12 months, so don’t take the course too early in your search.

How and When to Apply

Apply before you close. You cannot obtain an MCC retroactively for a home you’ve already bought.¹

The application goes through an approved MCC lender, not through MSHDA or the Michigan Department of Treasury. MSHDA keeps a list of participating lenders on its website. Your lender assembles the paperwork, adds your homebuyer education certificate, and submits the file to MSHDA for underwriting.⁵ You’ll need proof of income, household size, and documentation that you haven’t owned a home in the past three years.

Not every lender that offers MSHDA loans handles MCCs. Ask specifically about MCC availability the first time you call a lender, not after your mortgage is underway.

Claiming the Credit Each Year

Once your MCC is in place and you’re paying interest, you file IRS Form 8396 with your federal return every year. The form multiplies the mortgage interest you paid by the 20 percent certificate rate.⁶

There is a trade-off. If you itemize on Schedule A, you have to reduce your mortgage interest deduction by the amount of the credit. A $3,600 credit means $3,600 less mortgage interest to deduct. For most first-time buyers the credit still wins, because a dollar of tax credit beats a dollar of deduction. In a high bracket with substantial itemized deductions, run it both ways. The reduction applies even when part of the credit is being carried forward to a later year rather than used now.⁷ If you take the standard deduction, the trade-off doesn’t affect you at all.

Keep the MCC itself, each year’s Form 8396, and your homebuyer education certificate with your tax records for as long as you own the home and for at least three years after you sell or stop claiming the credit.

Recapture if You Sell Within Nine Years

Selling the home within nine years of getting the MCC can trigger a federal recapture tax, reported on Form 8828.⁸ The amount depends on how long you owned the home, whether you sold at a gain, and whether your income at sale is above the adjusted qualifying income for your family size. The recapture percentage drops the longer you hold the property and goes to zero after nine full years. If your income at sale stays below the threshold, you may owe nothing even on an early sale.

Some transfers don’t trigger recapture:

Transferring your interest to a spouse or former spouse in a divorce, as long as no gain or loss was reported.⁸
A home destroyed by casualty, if you rebuild on the same site within two years.
Refinancing the original loan with conventional financing, though a later sale inside the nine-year window can still cause recapture.⁸

Gifting the home to anyone other than a spouse is treated as a sale at fair market value for recapture purposes, so giving the property away is not a way around the tax.⁸

1
State of Michigan. Mortgage Credit Certificate Program
2
Office of the Law Revision Counsel. 26 U.S. Code 36 – First-Time Homebuyer Credit
3
Office of the Law Revision Counsel. 26 USC 25 – Interest on Certain Home Mortgages
4
Michigan State Housing Development Authority. MSHDA Income and Sales Price Limits
5
Michigan State Housing Development Authority. Homebuyer Education Requirements
6
Internal Revenue Service. About Form 8396, Mortgage Interest Credit
7
Internal Revenue Service. Form 8396 – Mortgage Interest Credit
8
Internal Revenue Service. Instructions for Form 8828 – Recapture of Federal Mortgage Subsidy