By now, you might have heard about the tax credit offered to first time home buyers.  The government is offering a $7500 (or 10% the value of the home, which ever is less) tax credit to first time home buyers that purchase a home between April 9, 2008 to June 30, 2009.   There are some income restrictions on the tax credit.

Obviously, this can be a significant tax incentive for a first time home buyer but I do have some mix emotions about this incentive.  According the house bill, 2 years after a person claims this tax credit they have to start re-paying the tax at 6.67% per year for the next 15 years.  If the individual decides to sell the property prior to paying the full the amount back, the remaining balance is due in that year.  So, what this credit amounts to is an interest free loan.

My concern is when a person goes to sell the home and have to pay back the remaining balance.  Most repeat buyers use the equity in their current home for the down payment on their next home.  Although I feel this tax incentive can be helpful in kick starting the current market, what damage are we doing to any future markets.  Are we creating situations where home owners will be stuck and are unable to sell in the future?

In short, I do feel first time home buyers should take advantage of this credit or interest free loan but I do believe that we as Real Estate Professionals need to make sure they understand the future effects so that they can plan accordingly.