I understand that the home buyer tax credit is a great incentive to get more people to buy houses, but I don’t think that everyone understands it completely. Talk around the break table lately has been about all of the confusion surrounding what is really going on with the incentive.
From what I understand, the incentive is a powerful one, and not that hard to understand. If you haven’t bought a new primary residence in the past five years, and then you buy a new one, you get a tax credit. A tax credit is different than a tax deduction. A lot of people don’t even understand the difference between a tax credit and a tax deduction. A tax credit is better than a tax deduction – the amount is subtracted from the amount of money you have to pay, irregardless of your taxable income, and sometimes results in a refudn. A deduction reduces the amount of you may have to pay based on your taxable income. It’s a subtle difference, but a very real and important one.
Unfortunately, with the way that the banks are cracking down, and people’s credit ratings going down the drain, the biggest problem that I see in rescuing the floundering housing market is the fact that people are having trouble getting a mortgage to pay for the new house, and a tax credit may not make a difference in that obstruction!