The new tax credit for home buyers is a loan

Hundred dollar bills in shape of house

Home builders and real estate agents are touting a new tax credit that awards first-time buyers up to $7,500 for purchasing a home.

But unlike other tax credits, you have to pay this one back.

What you're really getting is a no-interest loan that you obtain and repay through your tax returns.

If, for example, you owed $2,000 in taxes this year but bought a home and qualified for the full $7,500 home-buyer tax credit, it would cover the $2,000 you owe and you'd get a check from the U.S. Treasury for $5,500.

Then, within two years, you have to start returning it.

Home buyers who claim the credit on their 2009 returns will have to begin adding at least $500 a year to what they owe the Internal Revenue Service in 2011. (That's assuming they plan to take the full 15 years you're allowed to pay the tax credit back.)

What's the big advantage to all of this? We don't see one.

Though you could take the money, put in a CD and make a few bucks off the government, that isn't really likely to happen. You've got a new home. You're going to spend it on sofas, drapes and landscaping.

Paying for that with a no-interest loan is cheaper than running up big balances on high-interest credit cards.

But the idea of borrowing money from the IRS should make you think twice. And plunging deeper into debt right after buying a home isn't a good idea, no matter where the money comes from.

Congress was pushed into creating this tax credit by the nation's home builders and real estate agents.

Maybe that's why it looks more like a clever marketing gimmick than a real benefit to home buyers.

We think it's better to calculate how much you can afford to spend on a home and set aside enough money to furnish and decorate it without this dubious tax credit.

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