Additional 20% Tax Credits For Buying a Home: Chicago’s TaxSmart Program

July 16, 2009

Finance

Are Additional Tax Breaks Better Than a Sunrise Over Lake Michigan?

Are Additional Tax Breaks Better Than a Sunrise Over Lake Michigan?

Is your income less than $72,384? Is your household income less than $105,560? If your answers are 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 the City of Chicago?s TaxSmart Program, which is a Mortgage Credit Certificate (MCC) 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, it doesn?t matter if you are a first time buyer or if you are a recent homeowner. The home buyer can apply for the MCC in conjunction with a TaxSmart mortgage loan from a participating lender.

TaxSmart Equals an Additional Tax Credit of 20%

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.

Example: Single Person & Does Not Own a Home*

For a single person making $55,000 a year, it is assumed they would pay taxes in the amount of 20% (effective tax rate/bracket). So this would be $11,000 in federal taxes paid. By owning a home, mortgage interest and real estate taxes are deductible on your income tax. For this example we are going to assume mortgage interest write off is $10,800 and real estate taxes are $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.

TaxSmart Means An Additional $1,719 Refund For This Example

In addition to this standard tax benefit of $2,760, my client will also get back $1,719 on her tax refund because her income falls under the limit for the TaxSmart program. The 20% additional tax break can be taken each year that the home buyer hold the mortgage loan and uses the home as their primary residence.

[TABLE=9]

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

*Consult your tax professional, certified public accountant or tax preparer

Email This Post To a Friend. Email This Post To a Friend.
,

About Chris DePaepe

Chris is a lifelong Chicagoan who was born and raised on the Northwest side. She has a business degree from Rosary College in River Forest and a MBA in finance from DePaul University. She has been in the mortgage industry since July of 1996 and understands the importance of educating clients about the process of purchasing or refinancing a home. Chris?s education and customer service separates her from her competition, from taking an application at 11 p.m. to doing a closing in the convenience of your home, customer service is her #1 priority! With her extensive financial education she is able to pass along critical information to potential clients about mortgage interest and the differences between a 30, 25, 20 and 15 year loan. Chris will run every amortization chart and spend a great deal of time explaining the savings on your mortgage interest by showing actual examples. Also, most first time buyers do not understand the tax advantage of owning a home and she will break that down and show the actual tax advantage of owning a home versus renting. Chris prides herself on taking the time to fully educate every buyer so they are aware of the process from the beginning to the end without any surprises. Whether you are looking to refinance or purchase a home, understanding today?s market is extremely important to getting your loan approved. You can contact Chris 24/7 at chrisd@aandnmortgage.com, 773-305-7016, or 773-848-4144.

View all posts by Chris DePaepe

2 Responses to “Additional 20% Tax Credits For Buying a Home: Chicago’s TaxSmart Program”

  1. tax preparation company Says:

    Many people didn’t know about this one time tax credit when filing their 2008 taxes. The good news is that you can amend your return and get the refund! Use this form to find out if you qualify.Thanks for the useful tip, keep posting

Trackbacks/Pingbacks

  1. Today’s Mortgage Bonds Up Slightly | The Chicago 77 - July 20, 2009

    […] in a negative manner. Also, as a consumer, if you are purchasing in the city of Chicago, there are programs that are available if your income is under $105,000. Share and […]