First Time Home Buyers & the Housing Rescue Bill

hThere's been much in the news lately about the housing rescue bill that was passed by Congress and signed into law by President Bush. The massive bill includes benefits for virtually anyone that currently owns a home, or is looking to become a first-time home buyer. As a recent first-time home buyer myself, I naturally wanted to know "what's in it for me?"

The bill includes a tax credit for people who bought their first home between April 8, 2008 and July 1, 2009 of up to 10% of the home's purchase price or $7,500, whichever is less. In other words, the only home buyers who will be able to get the full 10% tax credit will be those who purchased a home priced at $75,000 or lower.

Considering that the median home price is $215,100 (as of June 2008), the overwhelming majority of people won't qualify for the full 10% discount. More people will be able to claim the $7,500 tax credit. For a person who bought a home for $300,000 and is in a 28% tax bracket, the tax credit will total $7,500 and will lower his/her tax bill by roughly $2,100.

Sounds great, right? But before you take that $2,100 and go shopping for a new 50" LCD HDTV at Best Buy, people need to know that, under the provisions of this tax credit, you have to pay back your tax savings in equal installments over the next 15 years. So it' not really a tax credit, but rather an interest free loan that has to be paid back to Uncle Sam.

It's anyone's guess why the bill includes this provision, but my guess is that the government knows that once people have $2,100 burning a hole in their pocket, they're going to spend it in the economy.

There's much more to the housing bill, and there's endless articles and commentaries from tax experts and financial writers. Here's a great article by Holden Lewis of Bankrate.com that I found to be very informative.