How did the Home Tax Credit Perform?

by Doug on Oct.22, 2009, under Homes

Some factions claim the tax credit is working well; evidence speaks otherwise.

The $8,000 tax credit is (from the IRS web site):

The credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.

The IRS is now investigating and prosecuting people who are falsely claiming the tax credit. It is estimated that over 100,000 claims are fraudulent.

At calculatedriskblog.com is an interesting calculation on how much the taxpayers are getting tagged for the tax credit:

NAR (National Association of Realtors) estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit.

With 1.9 million first-time buyers, the total cost of the tax credit will be $15.2 billion. Divide $15.2 billion by 350 thousand, and the program cost $43.4 thousand per additional buyer. The actual number could be much higher if there were fewer additional first-time buyers than the NAR’s estimate – or if the overall cost is higher (more buyers claiming tax credit).

The $15 billion dollar price tag is twice what Congress planned.

I have always believed that if $8,000 separates you from buying a house then you cannot afford the house anyways. Given the costs associated with home ownership, $8,000 will go very fast. So I am leery of the long-term effects of the taxpayer gift. I also believe first time buyer home prices have been inflated just like cash for clunker car prices were inflated by many dealerships.

Do you think the tax credit is worth it?