I was wondering what people think about this. There is a credit you can get for up to $7,500 for buying your first home after April 2008. I purchased my first home in May 2008. The catch is that you have to pay the IRS back the entire $7,500 starting in 2 years from now. Then you pay something like $500 a year until it is paid up or if you sell the house before that. I guess the concept is that you basically get a 0% loan from the government and then pay it back over time.
I'm sort of thinking that if I take this credit I am just digging myself into more debt. Even though there is 0% interest I will still have to pay it back. If I did take the credit I would pay it towards some other debt that I owe that has an interest rate of 12.9% interest. I guess my question is...should I or shouldn't I? I'm afraid that in 2 years or more $500 might be hard to pay....just not sure.
1|1|Would you actually get a check for $7500? Or a tax credit/deduction of $7500? And how do you pay it back? Do they keep $500 out of any returns you might recieve? |saint6811|waylan@comcast.net|14:53:58|01/25/2009|
"Middle age is when you choose your cereal for the fiber, not the toy." 2|2|It is a tax credit/deduction...(m)|cfosterart|cfosterart21@yahoo.com|15:58:44|01/25/2009|
The way to pay it back is to pay it with your normal income taxes. So if you would be getting a refund it would be minus $500 each year. If you owed, you would have to tack $500 onto the payment. I don't think it is an out and out check for $7,500. The website I was reading with the policy said it was a tax credit.
Cathy 3|1|Abbica (Amy), can you shed some light on this? Yeah or Nay in your opinion?? |saint6811|waylan@comcast.net|16:08:53|01/25/2009|
"Middle age is when you choose your cereal for the fiber, not the toy." 4|1|Some answers---but I cannot answer whether you SHOULD or should not---that's personal choice|Abbicca|Abbicca@bellsouth.net|22:56:53|01/25/2009|
OK..... some of the details:
The credit is 10 percent of the purchase of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing a joint return; $3,750 for married persons filing separate returns. The full credit is available for homes costing $75,000 or more.
You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
You must begin repaying the loan the second year after claiming the credit. For example, if you properly claim the maximum available credit of $7,500 on your 2008 federal tax return, you must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on your 2010 federal tax return. Normally, $500 will be due each year from 2010 to 2024.
You will pay it back on your normal income tax return---basically starting in 2010.
You claim it using form 5405.
It IS a FULLY refundable credit---so it IS a straight out check for up to $7500 (it carries to line 69 on the tax return---which means it CAN BE money going straight into your pocket despite having no tax liability).
There are phase out ranges for higher income people: The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income (MAGI). For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000
----------------------------------------------------------------------------------------------
As to whether you SHOULD or not-----that is up to the individual. If you are going to use it to pay back higher interest rate charges---then it's probably a pretty good idea (IMHO)---just put aside the money you were paying towards that bill anyway--and save it to pay back the IRS. If you just want a plasma screen TV and figure this way you can afford it---then it's a bad idea (IMHO).
My OPINION is it probably IS a good idea for you to take the credit---for the use you mentioned. After all, it isn't digging yourself DEEPER into debt....it's basically transferring the debt to a lower interest rate. Just be sure it doesn't make you think you have a lovely cushion and buy stuff you don't need. 5|2|I agree with Amy....I think it's a great idea if you use it strictly to pay off your high interest|kellysp6637|frugalk76@aol.com|23:10:49|01/25/2009|
debts and NOT for any unneccessary luxury items.....here's how I see it:
if you don't take the money...you will have to pay your high interest credit card anyway...
if you do take the money...you can pay off your high interest debts and only concentrate on the $500 you will need to pay at tax time
Either way you'll have to pay....but if you use the money to pay your high interest debts off you'll actually save money...so that's the route I would take...(just posting my opinion) 6|1|Exactly the way I see it kelly.......plus it gives you 2 years for the economy to strengthen |Abbicca|Abbicca@bellsouth.net|00:33:51|01/26/2009|
before you have to start paying it back..... and we ALL hope it gets back on its feet!!!
After all..... $500 per year is just over $40 per month to put aside...and you DO have a 2 year cushion to start paying it back. The EASIEST way to do it---assuming you can remember--- change your withholding on your W4 and have them take out an extra $10 per paycheck if you are paid every week and $20 if paid biweekly....in the line "additional amount if any you want withheld".
Most people don't miss it at $10 or $20 at a time...... cuz you don't spend it if it never hits your wallet.
My main concern is that we just have no idea WHAT is going to happen in the future in general---and the state of the economy is obviously a concern. 7|1|Thanks ladies! |cfosterart|cfosterart21@yahoo.com|22:14:47|01/26/2009|
I think I'll go ahead and use the credit and pay it towards my 12.9% debt. I'd like to clear up all debt except mortgage in the next 2 years so this would really help me. I like Amy's advice of having extra taken out of my check to pay the IRS back. I get paid once a month so I'll just do the $40 per pay.