Buying first home, need some advice, MCC tax credits

[Richard Koss]

I currently live in Colorado in the Boulder area and run a tree service. My fiance and myself are looking at buying our first home to live in for a few years 3-5 and then rent out. The asking price for the home is $120,000 its a HUD forclosure, the assessed value is in the $160,000 range. We're going to get a mortgage through a bank and borrow about $110,000.

My first question is about the MCC tax credit. in Colorado any home with a loan value of $100,000 or less qualifies for a 50% federal interest tax credit under MCC up to $2,000, any loan $100,001-$150,000 qualifies for 30% federal interest tax credit up to $2000. We can according to the IRS publication declare on the MCC form declare less than the loan amount. I want to declare exactly 100,000 for the higher percentage instead of the $110,000 we'd actually be borrwing. Does anyone see anything wrong with doing this, I've done the math and we'd save more money, but I just wanted to check with someone who may have done this before.

Also my next question also involving the MCC tax credit. The tax credit is for first time homeowners who live at the property, as long as you don't sell the house in the first 9 years you don't have to pay anything back. If after 3-5 years we save up and buy another house and rent the current house out, do we still get to claim the tax credit? Do we have to pay any of it back?

Also do you think waiting 3-5 years to buy another house is too conservative? what kind of timeframes did other people who've done this sort of thing go by? the house costs $120,000 but rental rates in the area for a house this size are about $1,000-1,100 per month with about $1,200 taxes annually. I think its a good investment.

We're just out of college and don't have much money saved up.