Thursday, December 11, 2008

Is the $7500 Tax Credit for First-Time Home Buyers a Good Deal?

By now, everyone has probably heard about the $7500 tax credit that first-time home buyers can get this coming tax year. We're hearing many people question whether they should claim the credit because they have to pay it back over the next 15 years (at no interest). Because $7500 is not a huge amount of money - certainly not enough to make anyone rich - it's a difficult decision, especially because the IRS is involved (we're always pretty suspicious of the tax man).

Here's a great way to tell whether something makes sense. Multiply the numbers by 1000. It will become very obvious whether something is a good idea if it's exaggerated by 1000. It will either seem really good, or really bad.

So instead of thinking about the tax credit as just being $7500, assume it's 1000 times $7500, or $7,500,000. If someone told you that you could have $7.5 million and all you had to do was pay it back - with no interest - over the next 15 years, would you take the $7,500,000, or would you think it was a bad idea because you had to pay $500,000 back each year? $7.5 million now, and only half a million paid back each year.

Makes it a lot easier that way, doesn't it?

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