Is the $7,500 first time homebuyer credit a good deal?
You decide. When you buy you first home between April 9, 2008 and July 1, 2009, you’ll be entitled to a $7,500 tax credit on your 1040 Federal income tax form. That could help you save tax dollars this year – or next year if you’re buying in the first half of ’09.
Whether it’s a good deal will depend upon your income now and your income as it will stand over the next few years. Because, you see, the credit has to be repaid. You’ll have 15 years to do it, adding $500 to your tax bill each year.
As it stands, the credit is nothing more than an interest-free loan of 10% of your home’s purchase price, up to a maximum of $7,500. Single taxpayers with incomes up to $75,000 and couples with incomes up to $150,000 are eligible. When your income rises above $95,000 ($190,000 jointly) you’re no longer eligible. Those who fall between the two limits will get a reduced credit.
The advisability of taking this credit will depend upon what you’re going to do with that $7,500. Using it to improve the house, spending it on an education that will result in a higher-paying job, or investing in tools, equipment, and supplies for your small business might make taking the loan a smart move.
If, however, you’ll do what the government hopes you’ll do to “stimulate the economy,” it’s not very smart. Paying for a new flat screen TV and stereo system over the next 15 years really isn’t a sound investment. Neither is making a down payment on a new car, unless your old car is really on its last legs.
If you were to use it to create another job, that could stimulate the economy and be a smart move, if the job benefited your business. But, you can’t hire someone for long with $7,500 – especially not after you deduct payroll taxes.
Don’t make any decisions based on this quite yet, because this program is still open to change. Congress is debating twists and turns that could alter it dramatically.
For instance, they’re considering doubling this credit to $15,000. Also, the new stimulus package includes a one-time credit for new buyers that won’t have to be paid back as long as they keep their homes for at least 3 years.
In response to current home owners who have cried “no fair!” Congress is also considering making the credit available to all homebuyers – not just first-time buyers.
Other proposals include promotion of a 30-year 4% fixed-rate loan for both new buyers and current owners who wish to refinance – with the government picking up the tab for the difference between 4% and the loan rate offered by the lender.
While all these programs are designed to stimulate buying, they’re causing some confused would-be buyers to wait.
Should they pay the rates offered now, or will they be able to get in at 4% next month? Should they go for the $7,500 tax credit now, or will there soon be a tax credit that doesn’t have to be repaid – and if they buy before that’s passed, will they miss out?
