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Senate Approves Extension of First Time Homebuyer Tax Credit-Will and Should it Be Extended?

RC — Sun, 20 Jun 2010 03:47:20 +0000

[Update 6/30/10]- The Senate passed the extension of the home buyer tax credit late Wednesday, effectively extending the Home buyer tax credit deadline for closing on a home until September 30th, 2010, for those who have already signed a contract by April 30th but not yet closed, once it is signed by the President. So those who were under contract by the April 30th deadline will have an extra 3 months to close on the transaction and still qualify for the credit. (Source: NYT article).

[Update 6/29/10]- Last week, the senate failed to pass (due to a Senate filibuster) the American Jobs and Closing Tax Loopholes Act of 2010, putting the 1st time home buyer tax credit extension for those who were under contract by the deadline of April 30th but have not closed yet (original deadline is still June 30th, 2010) in jeopardy.

However, today (6/29/10), the House of Representatives passed H.R. 5623, the Homebuyers Assistance and Improvement Act of 2010, trying again to extend the deadline to September 30th, 2010. The bill will be taken up by the Senate and signed into law by the President to go into effect.

For the latest updates on the homebuyer tax credit issue, subscribe to the RSS feed or via email, I’ll provide updates when and if it passes.

(Original post)

The Senate voted to extend the closing deadline for the first time homebuyer tax credit this past week, hoping to give those who have signed a contract but not yet closed on their home purchase an additional 90 days to complete the closing. The amendment filed by Sen. Harry Reid, to the American Jobs and Closing Tax Loopholes Act of 2010 passed the Senate on Wednesday. The bill still needs approval of the House of Representatives and the President’s signature before it becomes effective, though.

According to Reid:

“Because of this program’s popularity and the time it takes to complete transactions such as short sales, I led the effort today to extend the closing deadline for this tax credit through September of this year — allowing lenders more time to clear a backlog of 180,000 potential home buyers nationwide,” said Senate Majority Leader Harry Reid, in a news release after the amendment passed in the Senate this week.

To qualify for the credit, buyers had to be under contract for a purchase by April 30. But under current law they only have until June 30 to close on the sale. Supposedly, many people are having trouble getting their home purchases completed in a timely fashion as many lenders are experiencing a backlog, and the 90 day extension would give them until the end of September to work through any issues and complete the closing on their home.

I’m sure that many people see this as another attempt to “prop up” the housing market, which, after the qualification period ended on April 30th, saw a drop of over 10% in May, with a month to month drop of single family home construction of over 17% , according to this article. But, in this case, if the person qualified by the April 30th deadline, most of the delays are likely out of their hands, and I don’t really see it as a bad thing- although many will argue it’s just extending another government handout.

What are your thoughts- should people who have a contract to buy a house and met the April 30th deadline be given extra time to close and still receive the 1st time home buyer tax credit?

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$6500 Tax Credit for Existing Homeowners Who Purchase New Home Signed into Law, Not Retroactive, $8000 New Homebuyer Credit Extended

RC — Mon, 09 Nov 2009 12:32:34 +0000

The $6500 home buyer tax credit for existing homeowners who purchase a new home and the extension of the $8000 first time home buyer’s tax credit were signed into law on Friday.

The official bill, the Worker, Homeownership, and Business Assistance Act of 2009 was signed into law by President Obama on Friday, after being passed by both houses of Congress earlier in the week.

The newly available $6500 tax credit for existing home buyers who purchase a new home (must be a primary residence) between November 7^th, 2009 extends until April 30^th, 2010. A home must be under contract by the April 30th deadline to qualify, and closing must be within 60 days, effectively the end of June. Home owners must have lived in their existing house for five consecutive years out of the previous 8 to be eligible.

For 1^st time home buyers, the law effectively extends the deadline for the $8000 tax credit, which was set to expire on November 30^th, for 5 months, to April 30^th 2010. As with the new credit, the house must be under contract by April 30^th, and closed on by June 30^th to be eligible.

The new law also raises the annual income limits from $75,000 to $125,000 for singles and from $150,000 to $225,000 for married couples, which applies to both the $6500 tax credit for existing home owners who purchase a new primary residence, and the $8000 credit for 1^st time home buyers. Obviously, this will allow a larger pool of citizens in both categories to participate.

To be eligible, a new home must cost less than $800,000, and the new homeowner must live in the house for 3 or more years (as primary residence) in order to avoid having to pay it back. The tax credit will be able to be claimed on 2009 tax returns, even if the house is purchased in 2010, similar to what was allowed in the original $8000 tax credit program for homebuyers.

Is the $6500 tax credit for existing homebuyers retroactive?

Unfortunately, no. There was some speculation as the bill was working through Congress as to whether it would be applied retroactively up to some point in the past, but it is not.

Some existing homeowners who recently purchased a new primary residence undoubtedly feel like they are being left out unfairly, but the purpose of the program is to stimulate new sales in the future, not provide people with tax relief or a credit.

I understand the purpose of the law, but if I were a recent homebuyer, I am sure I would be a little angry that I was not eligible because of the timing of my home purchase, which in some cases could be a matter of a few weeks or less, and did not receive the credit.

There are many who are concerned that this is just a subsidy for the real estate market, and does not do much for the economy as a whole. For example, those that take advantage of the new $6500 tax credit for existing home buyers will most likely be putting their existing home on the market, thereby having no net effect on the number of homes purchase overall. (Although I am sure there may be some that would buy a new primary residence and rent out their old home, for example, which seems like would be OK under the new law.

Some even predict the cost to tax payers per home sold under the program to be $100,000 +. Ouch!

Here are some other good articles on the new home buyer tax credit and the extension of the existing tax credit:

Quick! Go Buy a New Home! New $6,500 Homebuyer Tax Credit for Existing Owners and $8,000 for First-Timers Gets Extended from Prime Time Money

Why The First Time Home Buyer Credit Is Terrible For The Economy at Moolanomy

It’s Official First Time Home Buyer Tax Credit Extended Now For Existing Owners Too at Free From Broke

$6500 Homebuyer Tax Credit For Current Homeowners Signed Into Law Today. Is It Retroactive? at Bible Money Matters

Did Congress Make the Homebuyer Tax Credit Retroactive? at Five Cent Nickel

$6500 Tax Credit for Existing Homeowners Who Purchase New Home Signed into Law, Not Retroactive, $8000 New Homebuyer Credit Extended is a post from: Think Your Way to Wealth a Personal Finance Blog Copyright 2008-2010

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Time for Homebuyer’s Tax Credit Running Out, Will it be Extended?

RC — Wed, 30 Sep 2009 10:56:29 +0000

The $8000 Homebuyer’s Tax Credit expires November 30th of this year, so for those planning on taking advantage of this by buying a home, time is running short. For those interested in taking advantage of the program, this means a house purchase must be completed by that date in order to receive the credit. Because many loans can take up to 60 days to process, many in the real estate and banking industry worry that the numbers will start tapering off in early October. At some point in the very near future, it is expected that mortgage lenders will stop taking applications on tax-credit loans unless it is extended.

There is movement towards extending the homebuyer’s tax credit through 2010, and increasing it to $15,000. Senator John Isakson of Georgia is leading the charge in Congress, backed by realtors, bankers, and homebuilders, who are also are promoting the tax credit extension with the tagline “Don’t Let America’s Real Estate Recovery Expire.” The American Association of Realtors estimates that appx. 350,000 home sales were directly attributable to the tax credit.

Some wonder if the tax credit is artificially inflating home sales, and possibly inflating home prices as well.

The White House says President Obama’s economic team is evaluating the effect of the tax credit on home sales- to determine their position, I imagine. It may be difficult to get the tax credit through Congress in short order though, with pressing issues such as health care reform looming over Congress and the Obama Administration.

Should the homebuyers tax credit be extended through 2010? Should it be increase to $15,000? Should it be available to anyone who purchases a home?

What are your thoughts?

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A Look at the $8000 First Time Home Buyer Tax Credit for 2009

RC — Sun, 10 May 2009 02:42:52 +0000

One of the ways the U.S. Government is trying to stimulate the economy is through a first time home buyer tax credit in 2009.

Passed as part of Obama’s Stimulus Bill, officially known as the American Recovery and Reinvestment Act of 2009, the credit is a refundable tax credit of $8,000, or 10% of the home’s purchase price, whichever is less, for first time home buyers who purchase a home between January 1, 2009 and November 30, 2009.

For purposes of the credit, a “first time home buyer” is a person who has not owned a home in the past three years. There are also restrictions on income. Home buyers must make less than $75,000 for singles, or $150,000 for couples to qualify for the full credit. (Partial credit is available for higher incomes earners).

The refundable tax credit can actually be claimed immediately, either by filing your 2008 taxes (if you have not filed yet), or filing an amended 2008 return if you have already filed for 2008. Since it is a tax credit, you are entitled to the full $8000, plus or minus either whatever you either owed to the IRS or whatever you were due as a refund.

Obviously, getting $8000 free is nice. But will it stimulate the real estate market enough? I guess only time will tell. Another thing that could potentially happen, is that people will “stretch” themselves when they are not quite ready financially, trying to purchase a home before the deadline of November 30, 2009.

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