first time home buyer tax credit

Stimulus Bill To Be Signed Tomorrow

Unless something completely unexpected happens, President Obama is expected to sign the American Recovery and Reinvestment Act of 2009 (better known as the Stimulus Bill) tomorrow, February 16, 2009. It’s a huge and mind-boggling piece of legislation, but the good news is that the part most affecting mortgages and real estate can be summed up by the following points:

• The best news – an $8,000 tax credit for first-time home buyers that will not have to be paid back. That’s right. It’s non-refundable! This is an big change and improvement over the current $7,500 tax credit approved last year, which had to be paid back gradually over a period of 15 years and was set to expire in July 2009. Here’s how the $8000 tax credit works : First-time home buyers: (defined as anyone who hasn’t owned a home for at least three years) who purchase a home between January 1 and December 1, 2009 will receive a refundable tax credit of up to $8000. The tax credit amount is based on 10% of the purchase price of your home, up to $8,000. In other words, homes valued over $80,000 will only get the max $8,000 tax credit. The credit doesn’t have to be repaid, but homeowners much keep their homes for at least 3 years to qualify.
• Great news for seniors – limits on reverse mortgage HECM loans will rise to $625,500 until the end of 2009 – at which time the new limit will be reviewed and possibly extended (but it’s not guaranteed). The current limit (until tomorrow) is $417,000, so this opens up reverse mortgage options for many seniors.
• Pretty good news – confirming conforming loan limits (that sounds like a tongue twister) to $729,750 in high-cost areas for FHA loans. That means that homes in areas with more expensive real estate can continue enjoying the benefits (low mortgage rates with easy qualifying) of FHA loans.
• Uplifting news – financing for states for construction and rehabilitation of low-income housing.
• Spreading the wealth news – Funding for rural housing loan programs, with up to 100% financing.
• Innovative news – Grants for energy efficient housing retrofits, and tax credits for energy efficient upgrades expanded through 2010.

Again, it would take something very unexpected to stop the stimulus bill from being approved. From all signs, it’s full steam ahead. The White House blog reports today that the President is very excited about the bill.

Now we all just have to hope it works as intended and hope it helps the real estate market rebound from its current slump.

---

first time home buyer tax credit

$15,000 for homebuyers

The current tax credit for first time homebuyers is $7,500.  Under the senate’s new stimulus bill, the credit is raised to $15,000 or 10% of the purchase price (which ever is lower).  Moreover, this credit will apply to all homebuyers, not just those purchasing their first home.  From CNNMoney.com:

The Senate credit also has no income limits. The House version, in comparison, allows only those with incomes up to $75,000 for singles and $150,000 for couples to qualify for the full amount. (In that bill, those earning up to $95,000 and $170,000, respectively, can qualify for a partial credit.)

Also, unlike the tax credit passed last summer as part of the Housing Recovery Act, this one does not have to be repaid. The old credit acted more like a no-interest loan than a true credit and, as a result, had little impact on home sales.

“This will bring pent-up demand back into the marketplace,” said Jerry Howard, president of the National Association of Homebuilders. “We believe you can’t effectively stimulate the economy until you find a way to stop the downward movement of home values.”

The National Association of Realtors estimated the Senate measure will attract an additional one million buyers who would otherwise have remained on the sidelines. “Consumers will view the tax credit as they do lower home prices,” said Lawrence Yun, NAR’s chief economist. “And more people will qualify [for buying homes].”

first time home buyer tax credit

Tax Credit For First Time Home Buyers

NEW YORK (CNNMoney.com) — If you’re thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that’s now before Congress.

Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.

Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn’t need to be repaid.

Many in the housing industry believe this credit could do a lot to jump start the moribund housing market.

“Our economists have studied the effect [of the credit] and they say there could be a 10% increase in home sales if it’s implemented,” said Mary Trupo, a spokeswoman for the National Association of Realtors. “It gives people who are sitting on the fence or who have inadequate funds for closing costs an incentive to act now.”

A 10% increase would yield an extra half million sales this year.

To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 limit for couples and disappears entirely at $95,000 and $170,000, respectively.

Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That’s it. No other forms or papers have to be filed.

Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don’t sell for at least 36 months, they keep the money.

And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer’s tax liability. So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund.

The housing industry has been pushing this idea for many months, arguing that first-time homebuyers are the key to boosting home sales. First time buyers who purchase from existing homeowners free those sellers to trade up to bigger, better houses.

But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card. Williams points out that buyers should beware that they won’t actually receive any refund for a home purchased this year until after they file their 2009 income taxes in April 2010.

And he argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn’t buy without it. So, it merely provides a windfall for many people who have purchased anyway.

And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that’s holding most buyers back – the suspicion that prices are going to keep falling.

“As long as people are uncertain about what markets are going to do, this won’t help much,” said Williams. “It’s not enough to change that.”

The industry would like to make the tax credit stronger by making it available to all homebuyers, not just first-timers. And it’s pushing to have the credit last through the end of the year, at least.

“By the time it’s implemented,” said Trupo, “there could be very few months left to act.” 

« Previous Page