Homebuyer Tax Credit: Not a Done Deal

Contrary to what many have reported, it’s not a done deal yet.

The most talked about real estate news of the past week seemed to be all about the First Time Homebuyer Tax Credit getting extended.

I’ve had numerous people contact me asking for the details and have had to tell all of them that nothing has passed yet.

Given the confusion and misinformation I thought I’d give an actual update on where the extension is.

The big news is that an unofficial voice vote passed the Senate last week, and Senate Majority Leader Harry Reid announced that he’s planning an official November 2nd vote on the extension in the Senate. Discussions with his counterparts in the House lead him to believe that the House will also pass the bill in the coming week.

This could put the bill on President Obama’s desk by the end of the week.

What could go wrong? Well, the vote was held up last week by demands for votes on several other amendments, one calling for an end to the Treasury’s TARP program by year end. An extension of unemployment benefits is also rumored to be causing issues. Popular bills like this one often have other amendments added to them that might not pass otherwise, so a lot of compromising goes on.

Some New Wrinkles

In its current form, the bill would extend the tax credit to the end of April 2010. There are several proposed differences from the current tax credit:

• To qualify, a sales contract would have to be signed by April 30th and the transaction closed by June 30.
• Income limits would be increased from $75k for single people & $150k for couples, to $125k and $225k respectively.
• Buyers who have lived in their current home for the last 5 years would be eligible for up to a $6500 tax credit (or 10% of the purchase price).
• The maximum allowed home purchase price would be capped at $800,000.
• Military personnel, deployed overseas for a minimum of 90 days in 2008 or 2009, would have until April 30, 2011 to claim the tax credit.
• To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.

Stabilizing the Housing Market

The Homebuyers Tax Credit is probably the best program passed by the government since the financial meltdown started. Other measures to stabilize the economy are increasingly under fire for racking up trillions in tax payer debt, while mostly benefiting the elite on Wall Street.

More than 1.25 million taxpayers have taken advantage of the tax credit to pursue the American dream of home ownership. This has used up approximately $8.5 billion of the $13.6 billion originally set aside for the program.

Reports show home sales have increased and inventory is down. Many buyers are finding it difficult to locate a home, being outbid and outhustled.

Concerns

Even this program has its problems and detractors though. Recently, the Treasury’s Inspector General for Tax Administration, J. Russell George, told Congress that at least 19,000 filing for the credit hadn’t bought a house when they filed. Another 74,000 appear to have owned a home in the last 3 years, making them ineligible for the program. 500 plus filers for the tax credit are under 18 years old!

The IRS is pursuing criminal cases against at least 100 offenders and is reportedly trying to audit every return where the credit is claimed this year. They’ll also be auditing themselves as Mr. George is also on record stating that they are investigating at least 53 cases of IRS employees filing illegal or inappropriate claims for the tax credit.

Many detractors are claiming that the tax credit is subsidizing housing values and just pulling forward sales that would have happened anyways.

One potential problem that the media hasn’t focused on yet, is that the tax credit may be encouraging banks to sit on foreclosed homes. Many real estate experts have pointed out that the number of foreclosures has been outpacing the number of units entering the market for some time now. Instead of putting these homes on the market to be sold, banks could be sitting on them to drive down inventory and push up prices – using bailout funds to support this endeavor. Not a lot that can be done at the “street level” about this, but surely something for our representatives to look into.

Don’t Procrastinate

Hopefully, the extension of the tax credit won’t turn more buyers into procrastinators who wait until the last minute to buy. Buyers should keep in mind that finding a home isn’t like shopping for Christmas items or even a car – where there are multiple copies of the desired item.

Homes are much more unique, rarely are even two homes remotely alike. Start your search now, as it could take awhile to find what you want. When you do find it, jump on it or someone else usually will.

Comments

[j-dub:]

"More than 1.25 million taxpayers have taken advantage of the tax credit to pursue the American dream of home ownership."

Persue? Who are you kidding? It's a handout.
I thought the American dream was a privledge, NOT A RIGHT.


You are so backwards with your thinking, it scares me what a weak nation we have become.
NOT MY AMERICA

Nov 02 10:37 AM

[jd3bama:]

I have owned my home for 6 years, but I buy rental houses. Can this credit be used for investment homes?

Nov 02 11:50 AM

[don't:]

Can this credit be used for investment homes?

I doubt and I hope not! I live in the house 3 years and need to move but can't use the credit while I pay for everybody's else credit. On one side this can help to sell my house but on the other it means free handouts to fix fraud that was and is happening in the real estate industry causing all this mess we are in.

Nov 02 12:19 PM

[don't:]

Fix the system first and then stimulate all you want.

Can I deduct from taxes buyer's & seller's agent fees that I as the seller have to pay for...NOTHING?

That is the real problem. You take a product, add 6% and sell, add 6% and sell, and so on. How long you think you can do this? It got to fail one day. It did, today. This is an unfair system that got us where we are today.

Nov 02 12:26 PM

[jd3bama:]

don't: "it means free handouts to fix fraud that was and is happening in the real estate industry causing all this mess we are in."

Using the tax credit isn't fraud and I have seen first hand how it is used. I'm a real estate agent and we get paid for selling real estate, same as you get paid for your time at work, regardless of your job description. I just sold a foreclosed house to a young couple who are using it for renovations. Two agents were paid, a banker, a home inspector, an appraiser and a closing attorney. How can that NOT justify stimulus?

Nov 02 12:49 PM

[Dani Watson:]

There are a lot of people who have not been able to save a nest egg, and can handle the monthly payments just fine, have a little in the bank, but not enough for the "paper trail" that usually follows purchasing a home! The closing costs in most states are just ridiculous!
All of us pay our taxes, and to see some people get into a home and fix up something that was decaying in a neighborhood that was once in pristine condition, then so be it! Let a few people be helped in the United States rather than a world of people who don't give a rats a-- about us! Stop complaining that it's our "tax dollars" when we're handing out money to every Tom, Dick & Harry anyway. We might as well have something "nice to show for the money"!! I for one hope this continues at least until tax time next year 2010!

Nov 02 01:15 PM

[j-dub:]

If you can't afford a home,
Then you don't buy a home!!!!
America-life is not about instant gratification

"Let a few people be helped in
the United States rather than a world of people who don't give a
rats a-- about us! Stop complaining that it's our "tax dollars" when we're handing out money to every Tom, Dick & Harry anyway."
I agree BUT two wrongs don't make a right and it will just cause people to lose money on their home when the value inevitably drops when the punch bowl is removed.
NOT MY AMERICA


On Nov 02 01:15 PM Dani Watson wrote:

> There are a lot of people who have not been able to save a nest egg,
> and can handle the monthly payments just fine, have a little in the
> bank, but not enough for the "paper trail" that usually follows purchasing
> a home! The closing costs in most states are just ridiculous! <br/>All
> of us pay our taxes, and to see some people get into a home and fix
> up something that was decaying in a neighborhood that was once in
> pristine condition, then so be it! Let a few people be helped in
> the United States rather than a world of people who don't give a
> rats a-- about us! Stop complaining that it's our "tax dollars" when
> we're handing out money to every Tom, Dick &amp; Harry anyway. We
> might as well have something "nice to show for the money"!! I for
> one hope this continues at least until tax time next year 2010!

Nov 02 02:41 PM

[ryanclarke:]

If one judges "home ownership" - not by signing a written contract with a bank to make monthly payments - but instead by OWNING THE HOME OUTRIGHT THAT IS HAVING 100% EQUITY IN THE HOUSE - "home ownership" would be at an all time low ... and never in the history of this country have so few families actually owned the property in which they reside.

Nov 02 03:42 PM

[goober1:]

A give-away is a give-away is a give-away. Trying to justify such taxpayer funded moronic insanity will not change what it is. Nor will it change the eventual outcome, more foreclosures. We are only creating a bigger and grander bubble in every thing this administratiuon has done and intends on doing and yes, they were ahnded a failed system from the previous morons. It is all a grand illusion and will also fail at some point. You can only live in denial for so long, economically and socially. There is a finite end to all things, especially those things that are not based in sound decision making and that annoying thing called "facts". Totally bad ideas

Nov 03 01:22 AM

[rodsailor:]

We are entering another government financed housing bubble as a result of the tax credits and the new emphasis on FHA loans at little or no downpayment. By making money available for only the purchase of homes, the government is creating a separate currency that is only valid for this use. Increasing the money supply increases price until the shoe drops once again. The bursting of this secondary bubble, on top of all the debt the government is adding, will drive the economy to its knees. Enjoy!

Nov 03 11:47 AM

[Adam32876:]

Ok, I bought my 2nd home in Sept. I owned my previous home for 6.5 years. Now I hear of the 6500 credit for existing homeowners. Am I going to be able to get any of this?
Adam


On Nov 02 10:37 AM j-dub wrote:

> "More than 1.25 million taxpayers have taken advantage of the tax
> credit to pursue the American dream of home ownership."
>
> Persue? Who are you kidding? It's a handout.
> I thought the American dream was a privledge, NOT A RIGHT.
>
>
> You are so backwards with your thinking, it scares me what a weak
> nation we have become.
> NOT MY AMERICA

Nov 04 08:35 AM