Realtor Ads and the $7500 credit

[Jesse]

I found this interesting this morning -

A local Realtor has a 5 minute morning show on our local radio station. Big sell this morning was the $7,500 tax credit. "Use this credit for a down payment and reduce your tax bill too. For example if you have a tax bill of $8,000, instead of paying anything, you'll get a refund of $500."

I don't know how you could use the credit for a down payment to begin with, possibly be incorporated into RALS? And if you use it for a down payment, how the heck can you also use it to reduce your tax liability? And of course, no mention of any amount having to be paid back.

[JohnH]

I can see it now.
Taxpayer normally has a $3K tax liability. Following their real estate broker's advice, they buy a home, reduce their withholding to -0- for the remainder of the year, and still get a $4K+ refund on their return due to the credit, which they blow on a boat. The next year they forget to change their withholding so now they owe $3 - $4K. By the end of year 2 they are making payments on an installment agreement plus they are having to repay the credit at $500/year, and they think their income has "gone down" because they had to revert to normal withholding. By the end of year 3 they are almost in foreclosure, can't sell the ">#^^& boat, and are griping about how the government put them in this mess. But take heart - another presidential election year is coming up so Congress will devise some scheme to bail them out. (Guess who foots the bill for all this...)

[DaveO]

You see pretty clearly JohnH

Your comments about the withholding struck home. A few years back I helped a couple through an OIC. Once we had it accepted I explained that the IRS would take their refund for that year. To avoid the loss of their refund they increased their exemptions for the last half of the year and ended with a balance due of a few hundred dollars. They next year they owed quite a bit since they never adjusted their withholding back to normal. When I asked why they hadn't they replied, "Because you never told us to."