The Housing Stimulus Bill: $7,500 for Homebuyers
Note that this information is outdated.
The Housing Stimulus Bill: $7,500 for Homebuyers By Lawrence Yun, Chief Economist The Housing Stimulus Bill passed in the Senate over the weekend. President Bush has said he will sign it into law. That means housing recovery is on its way. There are many components in the bill, but the one that I am most excited about is the homebuyer tax credit. Up to $7,500 will be given to first-time purchasers as they file their income tax returns. The amount gets phased out above a certain income level and is to be no more than 10 percent of the home purchased price - though most people will qualify for the full amount. This is almost like a "credit," which means that the amount is equivalent to cash on tax returns. Example: you do your normal tax return and find that you owe $1,000 next year. You then apply the $7,500 credit and the government will send you a tax refund check for $6,500. This credit has a time window and will not be available from July 2, 2009 on. It is not a full credit because you do have to pay back this amount over a 15 year time period from the second year. The payback provisions also have many conditions, which we are further researching. But in the worst case, you would need to pay back the $7,500 over a 15 year time span from 2010. So in your 2010 tax filing, you would need to pay $500. Even in the worst case scenario of paying back the tax credit fully over a 15 year time span, the tax credit is still a huge benefit to homebuyers. First, money today is worth more than money tomorrow - far more than money 15 years from now. Money loses value over time due to inflation and from the interest income one would receive on that money before fully paying it back. A smart consumer could pay off a high-interest credit card debt with the tax credit money and that would be the best winning strategy.