Unwrapped, Housing Tax 'Credit' Is Really a Loan

Another catch: High-income homebuyers won't qualify for the credit. You can claim less of the credit amount the more you earn. The phaseout starts for single filers with adjusted income of more than $75,000 and $150,000 for joint filers. It completely phases out at $95,000 for singles; $170,000 for married couples filing jointly.

The credit is also not available to nonresident aliens or those who qualify for a similar tax credit in the District of Columbia. And you can't take this credit if your home is financed by the proceeds of a qualified tax-exempt mortgage bond.

There is one other tax-friendly provision. The bill would provide homeowners who claim the standard deduction with an additional standard deduction for state and local real property taxes. The maximum amount that may be claimed under this provision is $500 ($1,000 for joint filers), according to a summary provided by the Senate Finance Committee.

This particular provision will be helpful to taxpayers who don't itemize. For example, a family with taxable income of $65,100 to $131,450 could deduct $1,000 of property taxes and pay up to $250 less in federal taxes, according to Nebraska Sen. Ben Nelson (D), who issued a release praising the deduction.

Previously, only taxpayers who itemize were able to take advantage of the property tax deduction. About 35 percent of tax returns include itemized deductions, according to Prante.

Ah, but there's a catch to this deduction, too. It applies only for the 2008 tax year.

Nonetheless, at least for one year, the property tax deduction will help people who are close to paying off their mortgages and thus don't have a lot of mortgage interest to deduct. It will also help low- to moderate-income homeowners and people in areas with no or low state taxes but who have high property taxes, Prante said.

Weighing these two tax provisions of the new law, I believe the state and property tax deduction will be the most helpful even though it is available just for one year.

I'm not crazy about the tax credit. This loan masked as a credit increases a homebuyer's debt. Yes, it will let some people reduce their tax burden, but the benefit is only temporary.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and athttp://www.npr.org.

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