CITY TAX SMART PROGRAM

Posted on September 18th, 2009 in All Articles.

CITY OF CHICAGO DEPARTMENT OF COMMUNITY DEVELOPMENT
TAXSMART MORTGAGE CREDIT CERTIFICATE PROGRAMSERIES 2008

Is your income less than $72,384? Is your household income less than $105,560? If your answer is yes, you may be missing out on a little known program offered by the City of Chicago’s Department of Community Development.
I recently met with a client who has an income of $55,000 per year. The client is single and is looking to purchase for the first time in the City of Chicago. During our application I pointed out that there is a program offered by the City of Chicago’s Department of Community Development. The City of Chicago’s TaxSmart Program is a Mortgage Credit Certificate program. The Program has been put into place to give tax savings to a first time buyer (defined as someone who has not owned a home in the past 3 years) or to a buyer of a home in a targeted area. If purchasing in a targeted area is does not matter if you are a first time buyer or if you are a recent homeowner. The Homebuyer can apply for the mortgage credit certificate (an “MCC”) in conjunction with a TaxSmart mortgage loan from a participating lender (A&N Mortgage Services, Inc is a participating Lender).
The benefit of this program is an additional tax credit of 20% of the mortgage interest that can be taken annually. This credit can be taken annually as long as the home remains the primary residence of the buyer.
In a very basic example below here is the standard tax benefit of owning a home*:
SINGLE PERSON – DOES NOT OWN A HOME:

For a Single Person making $55,000 income it is assumed they would pay taxes in the amount of 20% (effective tax rate/bracket). So this would be $11,000 Federal Taxes Paid.

For a Single Person who PURCHASES A HOME:

For a Single Person making $55,000 income BY OWNING A HOME MORTGAGE INTEREST IS A DEDUCTION ALONG WITH REAL ESTATE TAXES. For this example we are going to assume mortgage interest write off is $10,800 and real estate taxes $3,000.
$55,000 (income) – $10,800 (mortgage interest) – $3,000 (real estate taxes) = $41,200 taxable income.
$41,200 is the taxable income at 20% (effective tax rate/bracket). So this would be $8,240 Federal Taxes Paid.

If you did not own a home you would have paid $11,000 in Federal Taxes, now when you own a home your Federal Taxes are $8,240 which is a $2,760 tax advantage. For this client, she typically would get a tax refund of $800.00 per year when she was not a homeowner, now she will receive $800 plus the $2,760 for being a homeowner.

IN ADDITION TO THIS STANDARD TAX BENEFIT of $2,760, MY CLIENT ALSO WILL GET BACK $1,719 ON HER TAX REFUND/1040’s BECAUSE HER INCOME FALLS UNDER THE LIMIT FOR THIS PROGRAM. THE 20% ADDITIONAL TAX BREAK CAN BE TAKEN EACH YEAR THAT THE HOMEBUYER HOLDS THE MORTGAGE LOAN AND USES THE HOME AS THEIR PRIMARY RESIDENCE.

Income Limits Non-Target Area Target Area
One Person Household $60,320 $72,384
Two Person Household $75,400 $90,480
Three or More Person Household $86,710 $105,560

Consult your mortgage professional for more details and specific information regarding this program.

*Consult your tax professional, Certified Public Accountant or Tax Preparer