First time buyer tax incentive?

[reptile411]

For those that have not heard if you purchased your first home from I think it was 4/01/2008 and 3/01/2009 you may qualify for a $7500 rebate wich you must pay back with $500 per year for 15 years from your tax returns. its interest free and tax free. I took this offer and now I wander if it was a mistake. I figured we just got our first home and work is really iffy now so I figured having $7500 in the bank would be very nice and take some weight off my shoulders. My house payment is only 983 per month so that money can save my home if I get laid off "temporarily at least" Any imput on this 7500 FTB thing?

[sweeps]

You'll really kick yourself once you find out that Congress is working on a $15,000 tax credit to buy a house -- and it won't need to be paid back.

Bottom line is, are you happy you bought the house? An interest free loan isn't a bad thing. Just be sure that you don't spend it frivolously. Put it an a high-yield savings account and earn some interest.

[Caoineag]

I took it. I am perfectly happy to use a 0% interest loan with no payments the first two years. I also wanted money in bank because my DH works in real estate, yuck!

[Caoineag]

[quote=sweeps;206616]You'll really kick yourself once you find out that Congress is working on a $15,000 tax credit to buy a house -- and it won't need to be paid back.
[quote]


If you already bought a home, you can't get this, it only starts as of January 2009 (at least that was true as of the last version). An incentive is a lousy reason to buy a house but a nice bonus if you are going to do it anyway.

[sweeps]

Originally Posted by Caoineag

If you already bought a home, you can't get this, it only starts as of January 2009 (at least that was true as of the last version).

Right, that's why I said he might kick himself

[Russell]

I'd take the $7500 interest free loan...where do I sign up? I think we qualify since we purchased our house in June 08. Is there any other criteria to qualify for it? Any website or info where to apply?

EDIT: oops, this is our second time buying a house so I guess we don't qualify? it is our only home though.

[jIM_Ohio]

My understanding on the $7500 rebate in the tax code is that it gives you a tax credit...

the credit will probably be taken in a year where you are in a low bracket and be paid back when you are in a higher bracket. I'd only do this if you are desperate for more money.

[Caoineag]

Originally Posted by jIM_Ohio

My understanding on the $7500 rebate in the tax code is that it gives you a tax credit...

the credit will probably be taken in a year where you are in a low bracket and be paid back when you are in a higher bracket. I'd only do this if you are desperate for more money.

Normally I like your number crunching but you lost me here. While I agree that we will probably be in a higher tax bracket later on for part of the time we are paying it back, I fail to see the relevance (at least in my situation, no decent deductions anyways). Maybe this matters more to people who can itemize? Or perhaps for people who expect to be in much higher brackets later on instead of one step up (aka AMT concerns)?

Reason I ask is that I have always had to pay in (even techinically this year I would have paid in without the credit) so as long as I don't exceed the penalty threshold, tax is tax. When it comes to taxes, we get almost no breaks beyond the 401(k) and a piddly amount of student loan interest.

Obviously, we needed the money to replenish our EF so this is more curiosity than anything.

[simpletron]

Originally Posted by jIM_Ohio

the credit will probably be taken in a year where you are in a low bracket and be paid back when you are in a higher bracket. I'd only do this if you are desperate for more money.

let's suppose that you would owe X08 dollars for 2008 taxes, X09 dollars for 2009 taxes, and X?? dollars for 20?? taxes. if you took the 7500 credit, you would owe X08-7500 for 2008, X09 for 2009, X10+500 for 2010,and X??+500 for the next 14 years. so you owe the same in total taxes over the next 17 years. you'll still owe taxes on any earnings of the 7500, which is an increase in taxes. it is set up to be exact the same as a $7500 loan at 0% with a 15 year payback and defered payments for first 2 years.

if you're conversative, take the money and put it into savings account/cds/bonds. siphon off the interest to main savings and pay extra 500/year tax from the account. at current interest rates, will net ~3-4K.

if you're crazy like me. take the money and buy a stock yeilding 7%+. use the dividend to pay extra 500/year tax and keep the stock. much higher risk and higher potential reward.

[Russell]

simpletron, that's what I was thinking about doing with that $7500. It's an interest free loan for 2 years. I'd love to pay off my wife's credit card bills with that.

[jIM_Ohio]

It might be splitting hairs because $7500 is $7500 regardless of how much it is (or was not) taxed. But common sense tells me I can spend the $500/year better than I could handle a lump sum $7500 and pay less taxes on the $500/year.

If your goal is liquidity- meaning you NEED the cash now, take the $7500 credit and pay it back slowly. It is going to cost you more than $7500 to pay it back though (because you need earned income/taxable income to pay it back). Meaning it cost you little to get the $7500 now, but it will cost you $9300 in earnings to pay the $7500 credit back (25% bracket). In 15% bracket the cost is $8625 of earnings.

$7500 is $7500 in your pocket (regardless of the time)- agree on that issue?

If you look how the $500 gets paid back each year, you would need to earn $625 to actually earn the $500 you are paying back to the government. If you put the $500 into a 401k, no tax is paid on that money (for example) or if you put the $500 into a deductable IRA you would also get the $125/$75 in tax back (depending on bracket).

In your case you said you would take the $7500 and bank it. It will cost you somewhere between $8600 and $9300 to pay that back (the difference is because you pay taxes on the loan, so it is really not "interest free", the interest rate is your tax rate (15% or 25%) and that is close to loan sharking.

[Russell]

Just found this link, all the questions you wanted to ask about the $7500 tax credit:

WILL YOU BE ABLE TO GET THE $7,500 TAX CREDIT? (read on)? - Yahoo! Answers

[humandraydel]

Originally Posted by jIM_Ohio

In your case you said you would take the $7500 and bank it. It will cost you somewhere between $8600 and $9300 to pay that back (the difference is because you pay taxes on the loan, so it is really not "interest free", the interest rate is your tax rate (15% or 25%) and that is close to loan sharking.

Huh? What are you talking about? You get $7500, stick it in the bank, earn interest on it over 15 years and slowly pay back $500 per year.

[Caoineag]

Originally Posted by jIM_Ohio

It might be splitting hairs because $7500 is $7500 regardless of how much it is (or was not) taxed. But common sense tells me I can spend the $500/year better than I could handle a lump sum $7500 and pay less taxes on the $500/year.

If your goal is liquidity- meaning you NEED the cash now, take the $7500 credit and pay it back slowly. It is going to cost you more than $7500 to pay it back though (because you need earned income/taxable income to pay it back). Meaning it cost you little to get the $7500 now, but it will cost you $9300 in earnings to pay the $7500 credit back (25% bracket). In 15% bracket the cost is $8625 of earnings.

$7500 is $7500 in your pocket (regardless of the time)- agree on that issue?

If you look how the $500 gets paid back each year, you would need to earn $625 to actually earn the $500 you are paying back to the government. If you put the $500 into a 401k, no tax is paid on that money (for example) or if you put the $500 into a deductable IRA you would also get the $125/$75 in tax back (depending on bracket).

In your case you said you would take the $7500 and bank it. It will cost you somewhere between $8600 and $9300 to pay that back (the difference is because you pay taxes on the loan, so it is really not "interest free", the interest rate is your tax rate (15% or 25%) and that is close to loan sharking.

Okay its official. You have really lost me. If I choose to withhold an extra $500 per year (just straight withhold, not bothering to adjust my dependent number), how am I paying anything more than $7500 total? Maybe I am just too stupid or I missed something, but your earning numbers seem weird to me since as long as I earn $500 per year, I can pay this back...

[jIM_Ohio]

You have to earn more than $500 to pay it back- because you will be paying taxes on the $500.

If you earned $500 per year, you would not have $500 in your checking account. 6.2% fica, 1.45% medicare and fed/state taxes too- so you will have less than $500.

That is my point- you have to pay taxes on the money you are using to repay the credit. You would not have to pay the credit back if you did not take it, so it is costing you the difference between $9300 and $7500 or $8600 and $7500 depending on what tax bracket you are in.

[humandraydel]

Originally Posted by jIM_Ohio

You have to earn more than $500 to pay it back- because you will be paying taxes on the $500.

No, you don't have to earn ANYTHING to pay it back. You've got $7500 in the bank earning interest, and you owe $500 per year for 15 years. If you don't make a single dollar over 15 years, your tax liability is exactly $500 per year, for a total of $7500. So, pay it back slowly and earn interest on the $7500 in the mean time.

[jIM_Ohio]

Technically this means you increase your income $7500 in one year. That federal "refund" will be taxed by your state (as income to you). That state tax percentage will vary (from 0-10%), In Ohio for me it is 6%+, so unless the interest you get beats the state tax rate, you will be losing money on the deal state tax wise (if your state has an income tax).

[sweeps]

Jim, I think you're reading too much into this. Credits on your federal taxes are not taxable income. When you take the child tax credit for example, you don't pay state taxes on that.

[moneybags]

Originally Posted by jIM_Ohio

Technically this means you increase your income $7500 in one year. That federal "refund" will be taxed by your state (as income to you). That state tax percentage will vary (from 0-10%), In Ohio for me it is 6%+, so unless the interest you get beats the state tax rate, you will be losing money on the deal state tax wise (if your state has an income tax).

I don't know about all 50 states, but Illinois does not tax a federal refund.

[MonkeyMama]

Some states do tax federal refunds (& may tax the $7500 up front. Lord knows; it's not a true credit).

Amazingly enough, California is not one of those states. I think because of some constitutional rights or something. Lord knows they'd tax it if they could!