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4 Ways to Waste Your Tax Credit (and How to Avoid Them)

Posted April 22, 2010 by Matthew Denton

What not to do with the money you receive

So you got a tax credit for being a first time homebuyer, now what? Eight thousand dollars seems enough for an afternoon at Marshall Fields, right? If you have a financial plan, you wouldn’t definitely be entertaining any thoughts about spending your money to satisfy your immediate craving for shoes, electronics or an iPad. 

I’ve met some people over the past two weeks who’ve confessed how they’re going to use their tax credits. I couldn’t believe that they haven’t thought much about using their reduced tax liabilities for something more practical. Let me share some of their would-be costly mistakes.

First, a mother of four plans on replacing her kitchen cabinets with the money she’ll be receiving. Little does she know that the cost of materials and labor can leave her with few or no savings in the end. My tip? Opt for refacing – veneering or replacing only the visible portion of the cabinet. This can translate to almost 70 percent savings compared to buying a new one.

Second, a mother who’s still excited of her 2BR Asian-inspired abode is planning to add more lights all over her house. It’s a break from the minimalist touch that the original homeowner has preserved but it’s certainly not a wise use of her tax credit. Instead of installing too many lights, only add a couple of them in areas that need lighting frequently. For other rooms, have the walls splashed with light hues of paint to add light. You’ll be getting close to 40 percent savings.

Third, an MBA graduate who’s connected to a consumer goods company less than a year secured a mortgage and decided to settle for a newly renovated fixer upper in Florida. He told me that he’s not satisfied with the toilet so he plans of replacing it with a 13-litre tank to “save” water. I immediately advised him to find a 6-litre toilet instead. These ultra-low-flush types are the real water and money savers compared to their predecessors.

Fourth, a young couple based in Houston just moved in. They decided to have all rooms carpeted from corner to corner once they use their tax credit. I was shaking my head since they’re planning to include their daughter’s room and the basement for the carpeting project. Unless their intent is to waste their tax credit, it’ll be a wise choice to have the two rooms installed with carpet samples that can only cost for 25 cents to a dollar a piece. These squares may be unusual but for a play room that needs funky designs or a basement that not all visitors would be going into, carpet samples are your best options.

These tips will definitely give your money’s worth. Remember, your tax credit should go to something practical.
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