Before You Take That New Housing Credit . . .

The IRS hasn't yet come up with a system to accommodate an early payoff.

What happens if someone does not pay back the debt on time or at all?

The unpaid loan will be treated like any delinquent tax obligation, meaning standard -- and stiff -- IRS interest and penalties apply. For example, interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is the federal short-term rate plus 3 percent.

"It's important for people to understand that this is a tax credit upfront but a tax obligation down the road," Smith said.

Will this be a debt that has to be settled at closing if you sell the house?

This debt isn't tied to your home but rather to you as a taxpayer. The outstanding loan will probably not be required to be paid at the closing table, Smith said.

If you sell your home or if you change your principal residence, any remaining loan balance would be due immediately. If there is no gain, however, the remaining loan is forgiven. The gain will be figured the same way as profit on the sale of a home under typical IRS rules, taking into account purchase price, selling expenses and previous loan payments.

If someone moves but doesn't sell the home and if there is an outstanding loan balance, the homeowner would have to come up with the money out of pocket the same tax year once the home is no longer the principal residence.

If there is not a lien on the property, how will a settlement company know the debt is due when a homeowner sells?

It probably will be up to the homeowners to inform the IRS that a sale has occurred and that they need to pay off the loan balance, Smith said.

It's this last answer that I see as an oversight nightmare for the IRS.

Let's say a homeowner sells and realizes a $7,000 profit. However, he or she still has $6,000 left on the first-time home buyer loan. This means the homeowner will have to set aside the bulk of that gain -- $6,000 -- from the sale to satisfy the tax debt, which would be due in the tax year of the sale.

If the person isn't financially disciplined and spends the money, he or she could end up with a hefty tax liability.

"We have to look at all the issues involved with this credit and figure out the best controls," Smith said.

No kidding.

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

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.