$7,500 Tax Credit is NOW..... FREE MONEY?!?!?!?!?!? Holy Cow!!

[Anonymous]

It could actually hurt the economy it if people believe they will receive a $15K check in the mail if they purchase a home this year regardless of their situation. Some people will benefit, which is great.  However, I'm wondering what % of 2009 homebuyers fulling using this credit will be lower to lower-middle class citizens.  

Message Edited by loonzilla on 02-07-2009 06:55 AM

[Anonymous]

Exactly~!

This 15k would go into my new house that im buying next wed.

New floors , appliances , paint, water softner etc etc etc.

All pumped right back into the economy it self.  I dont see how that would be a bad idea.

[Lehrer29]

Here is an excerpt from the Bloomberg article. 

"Unlike the current law, the $35.5 billion provision wouldn’t be restricted to first-time homebuyers. It also would end homebuyers’ ability to claim the full credit if it exceeds the amount they owe in taxes.

The effect would be to wipe out the $15,000 income tax a family of four earning about $122,000 would otherwise owe this year if they bought a house. . . . Instead, the Senate provision would allow homeowners to split the $15,000 into two separate tax credits of $7,500 to be taken in successive years "

Sounds to me like you will get the money back and it's not just a credit that reduces a percentage of your taxes. 

[Lehrer29]

I do think the people that will not benefit from this are the people that didn't pay enough in taxes to get the full money back. I paid 8,000 in taxes. According to this article the credit should wipe out my tax liability. 

[Anonymous]

So this unrefundable really just reduces your tax liability?  Let's say I made 100k in 2008, and paid  20k in taxes.  If i claim the 15k credit, my taxable income is now really 85k?  So my refund would increase, but I wouldnt receive a check for 15k.  Is this a correct interpretation?

[Anonymous]

anda, in your situation, hopefully it reduces your tax OWED to 5K, meaning you would be starting off your return with an overpayment of $15K if u paid 20K.  

[Lehrer29]

I think the Bloomberg article is saying that is what will happen to anda. I think that would stimulate the economy. I'd rather owe 5K in taxes than 15K in taxes. The money you would have otherwise paid in taxes could be used on buying something which helps the economy.

[Anonymous]

Ok - If I was working for an employer and was purchasing a home after this bill passes, I'd be down in the accounting office changing my withholding to zero.  If you know your tax bill is going to fall within this credit amount (or 7500K a year over the next 2 years taxes), change your withholding to zero and you've given yourself an instant pay increase for the next 2 years.  That's extra money in every paycheck over the period of 2 years.  How is this not a stimulus?  I guess I'm not understanding those stating this will not be any kind of economic stimulus.

[Anonymous]

Let's clear up some confusion on what refundable tax credits, tax credits, and tax deductions are...

A REFUNDABLE tax credit is treated like extra with-holding taken out of your paycheck throughout the year.  Therefore, the $7,500 new home buyers credit added $7,500 to the amount with-held by your employer for federal taxes.  That meant you could receive a higher refund than what you actually paid in.  (A more familiar example of a refundable tax credit is the earned income tax credit).

A non-refundable tax credit is a credit on a dollar-for-dollar basis against your tax liability.  It reduces the amount of tax you owe.  BUT if your tax liability reaches zero, it WILL NOT give you money back.  If you normally owe $5,000 in taxes and get a $15,000 home buyer credit, assuming it passes, you will have your tax liability reduced to $0 instead of $5,000.  The other $10,000 has no effect (in the current year anyway)

A tax deduction is entirely different (and neither the home buyer credit or new home buyer credit is this BUT the interest deduction on your home is this):  It reduces your taxable income.  To simplify this (the real tax code is a bit more complicated), if your taxable income is normally $100,000 and you pay 25% and had a $10,000 deduction, instead of paying 25% on the entire $100,000 you will instead pay it on the $90,000.  So really it saves you 25% on the 10,000 (or $2,500), not $10,000.

There you go... And our tax system is 1,000,000 times more complicated than this in reality which just goes to show you how much we need to simplify it!!!

[Anonymous]

Ok, then to apply the example Daniel gave:  Earned 57k in 2008, income tax withheld was 12k, will receive a refund of about 3.5k.  If I qualify for the 15k credit, it will effectively reduce my tax to $0, meaning I overpaid by 12k.  Thus, I will receive a refund of 12k for 2008, and I forfeit the remaining 3k of the credit.  Is this correct?