New Homeowner Krew, what are you doing with your interest free loan?

[Geoff]

Wait, this says it has to be repaid if I read that right?

It’s a more of a loan than a traditional tax credit.

[Blue_Eyed_Devil]

Isn’t this just a tax credit?
I am too lazy to read.lol

[cougarspeed]

I am going to be cutting it close.:ohnoes:

[Geoff]

Well, yeah, it is a tax credit. But it has to be repaid to the govt like a loan.

Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven

Because the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?
Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.

[Blue_Eyed_Devil]

So you don’t actually get $7500 then?
$7500 tax credit actually equals less than $2000 (cash).(?)

[evilsrt]

Yeah I think people are slightly confused. This will lower your AGI by $7500. It is not a $7500 refund. So if you make $75,000 this year when you do your taxes your AGI will essentially start out at $67,500.

[Joe]

no, you get the full 7500. Reading > you guys.

What is the difference between a tax credit and a tax deduction?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

This is a CREDIT, not a deduction.

[Blue_Eyed_Devil]

^Thank you.

[walter]

^Thank you.

.

[JustinH]

no, you get the full 7500. Reading > you guys.

What is the difference between a tax credit and a tax deduction?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

This is a CREDIT, not a deduction.

Right so if you are already getting a 1000 dollar refund on your taxes, they just tack on an extra 7500 on to that, and you repay the 7500 in installments over 15 years after 2 years.

[theblue]

that’s kind of right…

• you don’t pay anything for the first two years, after that $500 each year w/ taxes.
• if you sell your house at a loss the debt is forgiven
• any profit from selling the house goes to repaying what you still owe if there is enough to cover it (if there is not then you don’t have to make up the difference).

so there is more to it then you simply repay, because in some cases you don’t

[fairgentleman_Z]

Me, i am hanging onto it as an emergency fund, putting it in a HSBC savings account at the current 3.5% would net me ~5k over the 15 year payback period.

That’s assuming that you aren’t paying back the $500 owed each year.

Since that will not be compounding, you will net $2,641 after 15 yrs.

Savings Withdrawal Calculator

start amount: $7500
years: 15
periodic withdrawal: $500 / yr
interest rate: 3.5% (daily)

But you could add in the interest from the 2 yr grace period…

[theblue]

close, you left out the fact that nothing is taken the first two years. which confuses me a little because then you’d only pay back 6500 assuming you don’t sell the house. most people don’t keep a house for 15 years this doesn’t apply.

also, I doubt the interest rate will stay down at 3.5 during the term.

[Penfold]

Since that will not be compounding, you will net $2,641 after 15 yrs.

factor in 15 years of inflation and your not really looking at that much profit.

[Choda]

I just bought a house, this seems like a good idea.

should i start paying back the 7500 immedantily, will i gain from this is anyway, or wait the two years then start paying?

there is no real sign up for this? the IRS will offer it to me because i bought a house?

if i make 30K on my taxes and get back a total of 1400, now with this ill still make 30K and get back 8900?

does anyone see a negative with this?

Any useful info would help, thanks guys

[theblue]

it’s zero percent interest which mean you can save zero money by paying it back early. It’s a part of your taxes, you’ll get extra money back. It’s not a traditional loan, you can’t pay it back early and there would be no reason to.

[Joe]

BUMP
http://www.bostonherald.com/business/general/view/2009_01_25_Home_buyers_may_get_true_tax_credit/
The new stimulus is about to #1 make it so this is a true tax credit, that you don’t have to pay back, and #2 extend the deadline til 12/31 :tup:

[Geoff]

woah. yes!

[Joe]

only for new '09 buyers though. if you bought in 08 as of now you still have to pay it back, unless they amend the bill before it passes.

[theblue]

noooo… I want my interest free loan to be free in general.

joe, where did you see the only for 09 bit?