TaxSmart is the City of Chicago’s Mortgage Credit Certificate: it gives an eligible Chicago home buyer a federal income tax credit of 25% of the mortgage interest paid each year, up to $2,000 a year, for as long as the buyer lives in the home.
Last reviewed October 18, 2026 · Chicago First Time Home Buyer editorial team
TaxSmart at a glance
| Run by | City of Chicago Department of Housing |
| What you get | Federal tax credit of 25% of yearly mortgage interest, up to $2,000 a year (50% for home improvement or rehab loans) |
| How long | Each year you live in the home financed with it |
| Who qualifies | First-time buyers (no home owned in the past 3 years) or anyone buying in a target area |
| Income limit | $119,900 for 1–2 people or $137,885 for 3 or more; $143,880 and $167,860 in target areas |
| Price limit, one unit | $544,232; $665,173 in target areas |
| Where | Homes in the City of Chicago only |
| When to apply | Through an approved lender, with your mortgage. You cannot get one after closing. |
| Counseling | First-time buyers need in-person HUD-approved pre-purchase counseling; online courses are not accepted |
How the TaxSmart tax credit works
A Mortgage Credit Certificate turns part of your mortgage interest into a dollar-for-dollar credit against your federal income tax. With TaxSmart, the rate is 25% for a home purchase, and the credit is capped at $2,000 a year. For example, if you pay $20,000 in mortgage interest in a year, 25% is $5,000, so you would claim the $2,000 maximum.
You claim it each year on IRS Form 8396. If you itemize, you reduce your mortgage interest deduction by the amount of the credit. If the credit is more than you owe in tax, the unused part can be carried forward for up to 3 years. You can refinance and keep the credit if your certificate is reissued; the City charges $100 to reissue a certificate.
TaxSmart income and purchase price limits (Series 2026)
Note, November 9, 2026: the City’s TaxSmart page, checked today, names its Series 2022 program and shows lower limits than the table below, which we recorded on October 18, 2026 (for example, $112,100 for a 1- or 2-person household outside target areas). Until we re-verify, confirm the current series and limits with a participating lender before you rely on them. See also which Chicago assistance programs are open right now.
| Household | Non-target area | Target area |
|---|---|---|
| 1–2 people | $119,900 | $143,880 |
| 3 or more people | $137,885 | $167,860 |
| Building | Non-target, existing | Non-target, new construction | Target, existing | Target, new construction |
|---|---|---|---|---|
| One unit | $544,232 | $544,232 | $665,173 | $665,173 |
| Two units | $696,816 | Not eligible | $851,665 | $851,665 |
| Three units | $842,238 | Not eligible | $1,029,402 | Not eligible |
| Four units | $1,046,782 | Not eligible | $1,279,401 | Not eligible |
Target areas are census tracts the City lists on its TaxSmart page; in a target area you do not have to be a first-time buyer. The City says these limits are adjusted from time to time.
Other TaxSmart requirements
- The home must be your principal residence, generally within 60 days of closing.
- It can be a single-family home, condo, townhouse, or a 2- to 4-unit building where you live in one unit. A 2- to 4-unit building must have been first lived in at least 5 years before you apply.
- The mortgage must be new; it cannot replace an earlier mortgage on the home.
- You must use one of the City’s approved lenders, or a lender approved through the City’s participation agreement.
Can TaxSmart be combined with other assistance?
Not with HomeGrown: NHS Chicago, a HomeGrown administrator, names the TaxSmart Mortgage Credit Certificate among the bond-funded programs that cannot be layered with the grant. Not with an IHDA mortgage either: IHDA says no Mortgage Credit Certificates from other agencies can be used with its loans, which rules out pairing TaxSmart with IHDAccess Home. IHDA’s own statewide credit certificate has been suspended since June 17, 2020, so TaxSmart is the one available to Chicago buyers. For other programs, such as Downpayment Plus, ask your lender to confirm.
The recapture tax if you sell within 9 years
If you sell the home within 9 years, you may owe a federal recapture tax. It applies only if all three happen: you sell within 9 years, you make a gain on the sale, and your income has risen above the limit for that year. It can never be more than half of your gain, and it is reported on IRS Form 8828.
Common questions
How much is the TaxSmart tax credit?
25% of the mortgage interest you pay each year on a home purchase, up to $2,000 a year, for each year you live in the home.
Can I get TaxSmart after I close?
No. You apply through an approved lender when you get the mortgage. The City says a certificate cannot be obtained after closing.
Do I have to be a first-time buyer?
Yes, unless you buy in a TaxSmart target area. A first-time buyer is anyone who has not owned a principal residence in the 3 years before closing.
Can I use TaxSmart with HomeGrown?
No. NHS Chicago, a HomeGrown administrator, says the TaxSmart Mortgage Credit Certificate cannot be layered with the HomeGrown grant.
Compare TaxSmart with the grants and loans on Chicago first-time home buyer programs, and see where to take homebuyer education in Chicago for HUD-approved counseling.
Sources
- City of Chicago Department of Housing, TaxSmart (Series 2026 qualifications, checked October 18, 2026)
- City of Chicago Department of Housing, Homebuyer assistance
- IRS, About Form 8396, Mortgage Interest Credit
- IRS, About Form 8828, Recapture of Federal Mortgage Subsidy
- 26 U.S. Code § 25, Interest on certain home mortgages
- NHS Chicago, HomeGrown Purchase Assistance Program (layering rules)
- IHDA Mortgage, Mortgage Credit Certificate (suspended June 17, 2020)
Cite this page: Chicago First Time Home Buyer, “TaxSmart: Chicago’s Mortgage Credit Certificate for Home Buyers,” reviewed October 18, 2026, chicagofirsttimehomebuyer.com/programs/taxsmart-mcc/.