The New First-Time Homebuyer's Credit – Is It Worth All the Trouble?
We all know the housing market needs help. So do prospective homebuyers.
But neither one is likely to get much first aid from the new “First-Time Homebuyer Tax Credit.” The tax credit is a major part of The Housing Assistance Tax Act of 2008, passed on July 30, 2008.
The intent of the credit is no doubt an admirable one: to provide up to $7,500 to help first-time buyers purchase homes.
But look beyond the intent, and the details get dicey.
First of all, unlike other tax credits, which don’t need to be repaid, this one is actually a loan to be paid back over a 15-year period. It’s an interest-free loan to be sure. But sometimes “free” is simply not worth the trouble.
When do most buyers need a loan? At the time they’re buying a home, of course.
Yet this tax credit/loan can’t be tapped until after the home is purchased, sometimes many months later. It must be claimed on a 2008 or 2009 tax return.
That lag time has prompted at least one tax analysis group to suggest that “new financial products will likely be introduced that will advance the funds in anticipation of the refund.”
Such “anticipation” products would likely come with a hefty interest charge. So much for getting an interest-free loan.
This credit could hold some appeal for certain homebuyers – say for someone who barely scrapes up enough money to purchase a home and could use the credit money for an essential repair, like a new roof. Or perhaps it could be used by cash-pinched homebuyers who need furniture or other big-ticket items.
But the question remains: Will it be worth the trouble of dealing with repayment at tax time for 15 years?
For more details on who qualifies and how, read this summary of The First-Time Homebuyer Credit.