Friday, February 27, 2009

rectal probe 2008

My wife and I were dutifully subjecting ourselves to the annual rectal exam known in technical lingo as a 1040 this past Sunday. As you go through H&R Block's online tax preparation (let's face it, filling out the actual forms requires multiple Ph.D.s in finance so you have to pay for some help), you discover all sorts of new gems every year. But one this year was by far my favorite.

The first-time homebuyer's tax credit.

A little more research and it looks like if I had been a home purchaser somewhere between April 9, 2008 and Dec 31,2008 I would qualify for a $7500 tax credit, effectively lowering the cost of my home by $7500 dollars. And this year it is set at $8000 between Jan 1, 2009 and Dec 31, 2009. We do have to adjust that credit for inflation!

My mistake again was playing by the rules.

See? My wife and I purchased our home a few years out of college back in 2002. We bought a little higher than we were comfortable with at the time but we had reasonable expectations that our income would rise reasonably over the next few years being fresh out of college in high demand fields of study. Being graduates of an engineering school, we were okay at math and figured out that we could afford everything just fine. We would just be looking at blank walls for lack of significant funds for furnishing. We still have mostly blank walls, but that's because neither of us really cares about stuff like that.

There was no home buyer tax credit when we purchased. So it might seem that we paid $7500 too much for our house by not "timing the market," so to speak.

The term "tax credit" is misleading for those of us that itemize deductions on our tax returns. You might think that it lowers your adjusted gross income by $7500. It does not. It is a refundable tax credit. AKA wealth redistribution. If you broke even on your tax return before the credit, you would receive a check for up to $7500. Oh, unless of course you're one of the filthy rich with a $75k individual salary or $150k combined for married couples. Then it reduces quickly towards $0 when you hit $95k single or $170k married. Why married couples don't get double here is not explained.

So, effectively, I am now seemingly at a $7500 cost disadvantage to peers in society that just bought a house last year. Congratulations, you won the proverbial government lottery of behavior modification through tax code.

But I did say "seemingly at a $7500 disadvantage," didn't I?

Where did government get the $7500 from? It must be profits from the businesses that government owns and runs. Oh, they don't really have those? (yet, at least, until we nationalize the banks) Where is this magical land of candy and rainbows that created this $7500? Oh, here it is! It's in my pocket and it's called my wallet. Or more realistically these days, my bank account.

So those of you who can do math without a calculator will quickly realize that I am effectively now at a $15000 competitive disadvantage to those fortunate enough to have purchased a home at "the right time." It may only be $7500 on paper but I wasn't born yesterday. However, I'd be better off financially if I'd been born about six years later.