I've been reading a few articles about this $7,500 tax credit for purchasers of a home after April 8, 2008. This is good news for my wife and I as we recently purchased our first home back in April so we will qualify to take this credit. The way I understand it is basically an interest free loan from the government that will be paid back over the course of the next 15 years.
Why has the government provided this tax credit? It is part of the stimulus bill that they hope to help stimulate the economy with. Policy makers are hoping that by realizing they will be getting this credit, Americans will be motivated to go out and buy their first home. I doubt this will work. Partly because right now I don't think Americans have the money to go out and by their first home. My wife and I bought a home but not because of this credit. We were at a time in our life where we were ready to buy. Had we not been to the point of being ready to buy, we would not have went out and bought just because of this credit being offered.
However, this year I can claim this $7,500 tax credit because we did buy a house and starting in 2010 I will add $500 a year to my next 15 years worth of taxes owed. My wife and I are definitely going to take this credit. Not quite sure what we will do with it yet though. I have thought about putting it directly towards our mortgage saving us quite a bit in interest expense over the next 30 years. The other option and probably the chosen path will be to invest the money in our mutual fund investment account. This will hopefully give us a higher return for our money and will provide some sort of cushion if we ever have a drastic emergency that drains our emergency fund.
Recently, I've been reading about a new change to this tax credit that is up for vote by congress. The change would make it so that we do not have to pay back this tax credit. Therefore it won't be like an interest free loan but rather like free money for us. I hope this passes.
For more information on the tax credit refer to the IRS site.