First time buyer tax incentive?

[humandraydel]

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]

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!

[maat55]

I think the 7500 free loan is just another mickey mouse worthless government program, my concern is the 15k freeby being proposed.

Is it just like the child credit where if you buy a house you get 15k period, or just a reduction in your tax liability?

If it is a flat give away, does anyone know where there is an 18th century style america I can move to?

[sweeps]

I think the 7500 free loan is just another mickey mouse worthless government program, my concern is the 15k freeby being proposed.

Is it just like the child credit where if you buy a house you get 15k period, or just a reduction in your tax liability?

If it is a flat give away, does anyone know where there is an 18th century style america I can move to?

Just for the record, Republicans demanded that the $15K tax credit for buying a house be included.

The Senate voted Wednesday night to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans eager to leave their mark on a mammoth economic stimulus bill at the heart of President Barack Obama's recovery plan.
[...]
Sen. Johnny Isakson, R-Ga., who advanced the homebuyers tax break, said it was intended to help revive the housing industry, which has virtually collapsed in the wake of a credit crisis that began last fall.
[...]
Isakson's office said the proposal would cost the government an estimated $19 billion.

[maat55]

Just for the record, Republicans demanded that the $15K tax credit for buying a house be included.

I'm a man without a voice. I wonder if Ron Paul approves of this, that's it, I'm switching parties.. I have no problem with the government allowing a person to keep his own money as an incentive, but this crap of giving him mine is asinine. Everyday, I feel like I have awakened into a country other than the United States.

Am I the only one disscusted with this? Oh, why am I getting all excited about this? IT'S ONLY ANOTHER 20 BILLION DOLLARS MY GRANDCHILDREN HAVE TO PAY BACK!!!!!!!

[jIM_Ohio]

I think the 7500 free loan is just another mickey mouse worthless government program, my concern is the 15k freeby being proposed.

Is it just like the child credit where if you buy a house you get 15k period, or just a reduction in your tax liability?

If it is a flat give away, does anyone know where there is an 18th century style america I can move to?

maat- most credits (the non refundable kind) lower the tax liability.

Taxes are calculate by
1) adding income
2) subtracting adjustments
**calculate AGI**
3) taking deductions
**calculate taxable income**
4) calculating tax liability
5) reducing tax liability with non refundable credits
6) calculating refund
7) increasing refund with any refundable credits

whether a credit is refundable or non refundable (child vs mortgage) has same effect- increases your refund dollar for dollar) and lowers your tax liability.

[Caoineag]

My state doesn't tax federal refunds (Colorado).

[simpletron]

jim in 2010, you are going to earn X dollars and because you earned X dollars you will have to pay Y dollars in taxes. I don't know what X and Y are, but it doesn't matter. because if you took the 7500 credit/loan this year, you would owe Y+500 dollars in 2010. it doesn't matter if you earned nothing or a million.

when you get the 7500 dollars initially, it won't be taxed at the federal level as income the following year. I doubt any state could tax it, do you owe more to the state just because you claim a federal tax credit? so you would owe less to the state if you didn't take the federal child tax credit, right? even if it is taxed at the state level, it still is capped at 10% only once at the begining. to overcome the 10% initial loss, you would need to earn an after tax return of ~1% over the the next fifteen years, which is a piece of cake to do. anything above that would be a profit.

if the state doesn't tax it, the credit just shift some of your current year tax liability to later years. total paid to the federal government doesn't change, no tricks or gimmicks.

[melissa15531]

It really makes no sense if you have to pay it back. Your just borrowing money for 15 years from the government. Even if you put it in the bank, with today's interest rates you probably would not make $500 in interest to make the $500 payment every year. Most people will spend it right away ayway and not put it in the bank. I was wondering if there were stipulations with this, such as you had to use the money for renovations and repairs. Also what happens if you lose your job? Then how would you pay that back? 15 years is a long time and noone knows what the future holds.

[Russell]

I believe the original intent was that those who just bought their first house could find a way to pay their mortgages for a short while if they become unemployed - it might be enough to keep the roof over your head for a few months while you look for a job - though not in CA since avg mortgage here is over $1500 a month.

I think it would've served that purpose well if the amount was higher for those in higher mortgage areas AND it was held in an escrow account only to be used for the mortgage payments. In other words if your lender doesn't get a check from you they would draw the payment from this escrow account.

Having said that, if you get 3% APY on $7500 for 15 years would yield $3400 or so in interest earnings. This is too simplistic, however, what about inflation and what about earning more or less than 3% over 15 years.

As far as paying it back I believe you have to pay taxes on the $500 a year as part of your regular income but if there was no $7500 tax 'credit' you would've paid that anyways. So what you're getting is $7500 0% loan. I think the best use would be to use the $7500 to pay off a 14% credit card balance for example.

[maat55]

maat- most credits (the non refundable kind) lower the tax liability.

Taxes are calculate by
1) adding income
2) subtracting adjustments
**calculate AGI**
3) taking deductions
**calculate taxable income**
4) calculating tax liability
5) reducing tax liability with non refundable credits
6) calculating refund
7) increasing refund with any refundable credits

whether a credit is refundable or non refundable (child vs mortgage) has same effect- increases your refund dollar for dollar) and lowers your tax liability.

I'm OK with them lowering my tax liability. My problem is with them giving me free money. Example:

I buy a home for 150k
My tax liability for the year is 5k
Are they giving me 10k? or are they letting me keep my 5k only? I'm under the impression they are giving me 10k of your money without your permission. In a free society, that's called theft, much like auto workers getting overpaid on my dime. IT PISSES ME OFF, and it should any other red blooded American.

[reptile411]

I believe the original intent was that those who just bought their first house could find a way to pay their mortgages for a short while if they become unemployed - it might be enough to keep the roof over your head for a few months while you look for a job - though not in CA since avg mortgage here is over $1500 a month.

I think it would've served that purpose well if the amount was higher for those in higher mortgage areas AND it was held in an escrow account only to be used for the mortgage payments. In other words if your lender doesn't get a check from you they would draw the payment from this escrow account.

Having said that, if you get 3% APY on $7500 for 15 years would yield $3400 or so in interest earnings. This is too simplistic, however, what about inflation and what about earning more or less than 3% over 15 years.

As far as paying it back I believe you have to pay taxes on the $500 a year as part of your regular income but if there was no $7500 tax 'credit' you would've paid that anyways. So what you're getting is $7500 0% loan. I think the best use would be to use the $7500 to pay off a 14% credit card balance for example.

Exactly. Now I can brag that I got a gov bailout like the banks got lol. That is the one reason we decided to take it. Work is very iffy. I am not at risk of being laid of perse however we are taking curtailments of 1-2 weeks per month so I figured the best interest for my family and our new home would be to have this money sitting in the bank. I plan to put it in my ING savings with 2.4APY. This money alone is enough to pay our house payments for almost a year if the worst case should happen.