Shoud I bother with the new federal housing tax credit?

August 7, 2008 5:01 PM

FinancialOpinionFilter: I qualify for the new Federal Housing Tax Credit! Yay! But since I have to pay it back it hardly seem useful. Plus there's extra hassle with taxes for the next 15 years. Should I bother claiming it?
posted by GuyZero to Work & Money (5 answers total)

Best answer: Assuming a 5.5% mortgage rate, a $7500 loan over 15 years would otherwise cost you about $3,500 in interest. So I guess the question is, do you feel like it's worth it to fill out a few extra forms at tax time for $233 each year? I think you do.
posted by 0xFCAF at 5:54 PM on August 7, 2008

Best answer: Sure. $7500 on a 15 year 0% loan seems like a good deal to me, ~$1500 in interest income if you just put it in the bank.
posted by yort at 5:54 PM on August 7, 2008

Best answer: What makes you think there will be a hassle with taxes over the next 15 years? Since the question "How do I claim the tax credit" does not appear on that web site's FAQ, I would guess that the logistics have not been decided yet. I would guess that if it involves your tax return at all, it would be in the first year only. You'd claim the credit, they'd tack $7,500 onto your tax refund, and then you'd get a bill for $500 every year for the next 15 years. I don't know how those annual payments would involve your tax return at all.

As for whether it's worth the effort: If you don't need the money, you might as well apply for the credit anyway. Put the $7,500 in an interest-bearing account and pay the $500 payments out of that. After 15 years you'll probably have a couple thousand dollars left over.
posted by Dec One at 6:00 PM on August 7, 2008

Best answer: You're going to be amortizing points anyway ( I assume you're paying points) so the added line for the tax credit loan will be a breeze. Especially if you use a tax preparing software package.
posted by Gungho at 6:05 PM on August 7, 2008

Response by poster: My assumption is that it'll be paid back via some sort of negative credit on my future taxes but that's just a guess. I suppose it might get repaid via some other mechanism though. But yeah, free money is free money.
posted by GuyZero at 8:58 PM on August 7, 2008