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First time homebuyer Credit - Do you have to take it all?


BulldogTom
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It appears to be an all-or-nothing thing, but It is not real clear. But I don't think, if you put a smaller 'purchase price' to get a smaller credit, that anyone would care. So if I had a client who was eligible for the full $7500 but only wanted to claim $5000, I'd put $50,000 in the box at the top for 'Purchase price of home' and that will limit it to that max.

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I thought of that too, but I think that would still stretch out the repayment 15 years. What the client wants is to take a smaller amount (say 2500) and pay it back at 500/year for 5 years.

This damn credit is screwy.

Tom

Lodi, cA

Can you prepay the loan? Or can you only pay it back at 500 per year?

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If he can't find a better use, tell him to take the loan and sink it into staggered CD's giving him a guaranteed return. If he doesn't want the no interest loan, there are lots of other people who would be HAPPY to have it.

Personally, I would have it reduce my loan on the house to save me more money than he would get in interest.

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This may be a bit of a stretch, but it seems to me that the Home Buyer's Credit operates in practice in much the same way as a Sec 179 depreciation deduction. You get to derive a tax benefit now in exchange for giving something up in the future.

Repaying the credit is the equivalent of paying the tax on the phantom income related to the principal payments on a loan used to finance an asset on which Sec 179 was taken in year 1. So in theory it should be about as easy to explain the repayment of the credit at no interest as it would be to explain the phantom income to a business client. Of course, the problem arises in the implementation, since people seldom want to think about long-term consequenses of something that they like to think of on a year-to-year basis.

I'm not preparing any returns claiming the Home Buyer's Credit, preferring to send anyone eligible to HRB or JH. But my suggestion to them would be to use the credit to, in order: 1) Pay down high-interest credit cards; 2) Pay down non-tax-deductible auto loans: 3) Pay down second mortgages or HELOC accounts: 4) Make additional principal payments on the home mortgage. Unfortunately, most of them are going to use it as a down payment on a hot tub, boat, or motorcycle and them gripe for the next 15 years about how the credit is costing them $500/yr.

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Tom, from what I read the repayment of the $7500 is going to be forgiven in the new package going through Congress. I'd advise him to take the full amount. Tom, if you want to ask him if he would send the payments directly to me. I decided to remodel my office and I'm trying to raise about 1 1/2 million to get started.

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That is an interesting development. I heard the 15K credit was scrapped, but I did not read about the change to this credit. It is always so dangerous to advise a client based on what "might" actually become law. I have another client that we decided to amend the return after the stimulus package is finalized to see what comes out of it.

Thanks for the heads up. I will be looking for confirmation on that credit when the bill finally goes to the President.

Tom

Lodi, CA

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That is an interesting development. I heard the 15K credit was scrapped, but I did not read about the change to this credit. It is always so dangerous to advise a client based on what "might" actually become law. I have another client that we decided to amend the return after the stimulus package is finalized to see what comes out of it.

Thanks for the heads up. I will be looking for confirmation on that credit when the bill finally goes to the President.

Tom

Lodi, CA

That is indeed good news. I have a couple of clients that have taken the loan so far. I'm not going to say anything to them just yet.

Eli

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Tom, from what I read the repayment of the $7500 is going to be forgiven in the new package going through Congress. I'd advise him to take the full amount. Tom, if you want to ask him if he would send the payments directly to me. I decided to remodel my office and I'm trying to raise about 1 1/2 million to get started.

Last I read was that the $7500 would be forgiven for homes purchased between Jan 1, 2009 until the end of August 2009. Houses purchased between April 8, 2008 and December 31, 2008 are still subject to the repayment terms.

But I could be wrong since I have heard nothing else except the scrapping of the $15,000 proposal.

I would also like to know if it has remained a refundable credit?

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I'd be a little cautious about waiting to take the credit until the legislation passes. One never knows when a poorly-worded phrase such as relief for "Taxpayers who have already claimed the credit" might be in there, rather than "Taxpayers eligible for the credit between ___ and ___ " or some other more broadly-worded phrase. Stranger things have happened, and then at best you're hoping & praying for a Technical Correction somewhere in the future.

Of course, that's only an issue with hastily-written legislation. In this case since the Congress clearly has its head on straight and isn't trying to get something done by an arbitrary deadline, there's probably nothing to worry about. On the other hand, if some momentous occasion such as President's Day is the controlling factor, there might be reason for concern. Oh, I'm probably just rambling for no reason here...

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This quote from MSNBC News. It is a small tidbit from the details of the compromise bill. Notice the dates of purchase. You hit it right on the head, JohnH.

"Homebuyer credit

$3.7 billion to repeal a requirement that a $8,000 first-time home buyer tax credit be paid back over time for homes purchased from Jan. 1 to August 31, unless the home is sold within three years."

Tom

Lodi, CA

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CNN Money 2/13/09

Temporary credit for home buyers: The bill increases the size of an existing temporary and refundable first-time home buyer credit to $8,000, up from $7,500. It also removes the requirement under current law that the credit be paid back if the buyer stays in the home for at least three years. And it would extend the credit's expiration date to Dec. 1, 2009, from July 1. Those eligible for this credit must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009.

The full credit is available to those making $75,000 or less ($150,000 for joint filers). Estimated cost: $6.6 billion.

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>>Estimated cost: $6.6 billion.<<

My calculator doesn't have that many digits, but isn't that projecting eight million families, who never qualified to buy a house in the heady days of full employment and easy mortgage underwriting, will suddenly become happy homeowners this year? I think this new stimulus bill is full of grandstanding silliness.

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Is it our politicians who are imbeciles, or might it be the voters? I said this on the TMI forum and I stand by it - I think our politicians by and large have learned well from WC Fields' character (Larsen E. Whipsnade): "... my granddaddy said right before they sprung the trap, 'Never give a sucker an even break or smarten up a chump' ".

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