What is the Chicago Tax Smart Program and what will it do for me?
The City of Chicago’s TaxSmart Program is a Mortgage Credit Certificate (MCC) program. The Program offers a tax savings to a first time Homebuyer or to a purchaser of a home located in a "target" area by providing a credit against the Homebuyer's federal income tax. The amount of the credit is limited to 20% of the interest paid or accrued on the home loan.
Target Areas in the Mortgage Credit Certificate program are defined as those census tracts that had at least 70% of the households below 80% of the State median income as of the 2000 Census
The credit can be claimed each year that the Homebuyer holds the mortgage loan and uses the home as their primary residence. MCCs can also be issued for Home Improvement Loans or Rehabilitation Loans. Under the Rehab or Home Improvement loan program, the amount of the credit is limited to 50% of the interest paid or accrued on the home loan up to $2,000 per year. The credit can be claimed each year that the Homebuyer holds the mortgage loan and uses the home as their primary residence.
For example, if you borrow a $180,000 at 6.0% for 30 years. You will pay $10,740 in interest the first year. At a 20% credit this will equate to a $2,148 tax credit in your first year.
Residential properties consisting of one to four units are eligible for purchase under the TaxSmart Program. The property purchased may be a rental building, condominium, townhouse, or single-family home. If the building contains 2-4 units, one unit must be occupied by the owner. Or for Rehab or Home Improvement Loans the home must be owner occupied.
Homebuyers also have to meet income qualifications as well. A one person household cannot gross more than $72,384. A two person household is capped at $90,480 and a three person household at $105,560
The Homebuyer can apply for the mortgage credit certificate (an “MCC”) in conjunction with a TaxSmart mortgage loan from a participating lender. The Homebuyer will be charged a $375 application fee of which, $225 is due at closing to the Department of Housing. The city maintains a list of approved Lenders able to offer the program. All lenders will qualify the homebuyer on stadard underwriting guidelines.
The TaxSmart Program is made available through the City of Chicago’s Department of Housing.