Marylanders get relatively few homebuyer tax credits
On Thursday James R. White, director of strategic issues for the Government Accountability office, testified before Congress on tax credit for first time home buyers. Included in the paperwork he submitted is a state-by-state breakdown of people who so far have claimed the first-time homebuyer credit.
Maryland is low on the list of per-capita claims, ranking 34th in the country, with 23,831 buyers claiming the credit as of Aug. 22. Total credits claimed for Maryland came to $166.2 million, or less than $7,000 per house on average. The failure of many Maryland buyers to max out the credit to $8,000 seems to indicate they are buying inexpensive shelter, especially for Maryland. Condos, maybe. To get $8,000 in credit you only have to spend $80,000 on the dwelling.
(UPDATE: Reader David M. has a far better grasp on what's probably going on. In comments he says: "Really? I think it's far more likely that many Marylander's using the tax credit make more than 75,000/person or 150,000/couple, which also reduces the amount you can claim. Maryland has a high median income and thus, high real estate costs." Thanks, David.)
Tops for per-capita, first-time homebuyer credit claims were Nevada, Utah, Arizona and Florida, where they have lots of empty houses to get rid of. Places at the bottom of the list were West Virginia, New York, Hawaii and the District of Columbia. Naturally people buying homes for the first time tended to have lower-than-average incomes, the GAO reported. That's one reason Maryland, one of the highest-income states in the country, has seen less tax-credit action than other states.
GAO also reported discouraging news about the ability of the tax authorities to catch people cheating on the credits -- those who really aren't first-time buyers, for example. Among other problems, the IRS didn't require people claiming the credit to provide documents proving that they were qualified for it, GAO said. Here we go again. You heard of liar-loan mortgages? Welcome to the liar tax credit.
Here's what the GAO said:
IRS faces significant challenges in determining if taxpayers are complying with the numerous conditions for the credit.
For example, to determine eligibility, IRS must verify that taxpayers have not owned a house in the previous 3 years and verify the closing date on home purchases. Other challenges include enforcing the $500 per year payback provision in the 2008 credit. According to recent IRS data, up to $7 billion could be repaid to the federal treasury over the 15-year period of this provision.One reason assuring compliance is a challenge is that IRS did not require substantiation, either by the taxpayer or from a third-party source, to validate the information on the Form 5405. For example, IRS decided that requiring taxpayers to attach supplemental documentation about a home sale to a tax return would be burdensome.
Comments
"The failure of many Maryland buyers to max out the credit to $8,000 seems to indicate they are buying inexpensive shelter, especially for Maryland. Condos, maybe. To get $8,000 in credit you only have to spend $80,000 on the dwelling."
Really? I think it's far more likely that many Marylander's using the tax credit make more than 75,000/person or 150,000/couple, which also reduces the amount you can claim. Maryland has a high median income and thus, high real estate costs.
Posted by: David M | October 23, 2009 11:18 AM
David: Thanks for the thought. Your analysis makes more sense. I had forgotten about the phaseout for higher-income folks. It's still true -- other evidence shows this -- that less-expensive homes are the ones moving. But probably not nearly as cheap as I suggested. Heck, $80K probably can't even buy a 1-bedroom condo around here.
Posted by: Jay Hancock | October 23, 2009 11:23 AM
Wow, why bother to write this article if you don't understand the issue. How about letting David M. write your next article. It was a pretty obvious conclusion after all.
Posted by: Ben | October 23, 2009 11:52 AM
My parents tell me of a time when reporters actually sought out information instead of just assuming. It's a shame you botched your whole point. Maybe this is one of the reasons fewer people read newspapers than they did 20 years ago.
Posted by: Kevin | October 23, 2009 11:53 AM
Hi guys: Shame on me for speculating on what was happening without thinking harder. But this is how the blogosphere works -- somebody throws out an idea and if it's bogus somebody else shoots it down. Journalism resources being what they are, with my day job writing the column, I can't promise every blog post will be fully baked. But I trust you all to do the reality checks, and I appreciate it. The hivemind makes us all smarter.
Posted by: Jay Hancock | October 23, 2009 12:26 PM
The tax credit is in many cases a lot of smoke and mirrors. My wife is a disabled vet who got a severance when she was seperated from the military in June. We would love to use the tax credit but with our incomes and the one time severance our income is too high to be eligable.
What the tax credit fails to take into consideration is we used her severance to pay off her student loans of which she still has over 60K worth. But according to Obama we are rich and don't need the break to afford a home. Like many of his policies this looks good in theory but in reality is useless.
Posted by: rick | October 23, 2009 12:55 PM
This is a diss-service to Marylanders. I know of persons buying homes--first time, and bankers' represnetatives do not even understand how to access these funds. They need training. Inaltimore County, one person was told that the funds were all used up in her area (location) that she intended to buy house. Why is this allowed? Federal funds should be available regardless of the area of the county that ther person is moving into.
Posted by: Jeannette | October 23, 2009 2:31 PM
Rick makes a good point. The formula should take into account people who have 'one time' payments for say..... being disabled, and EXCLUDE those from the formula, unless they are over 1 million dollars.
Then, you can still take them into account.
They need to change the formulae to take into account the realities of life today, in which people might get a one time 'lawsuit payment' or something else, but use it to pay off old debts and are STILL really, without that payment, in the category where we want to give them help buying a home.
Another thing that they need to do.... expand the credit so that it applies to things like mobile homes. My family is not 'poor' but fit into the area where we could have used this credit, but wonder of wonders.... it didn't apply to mobile homes, single wide or double wide.
Posted by: Christopher | October 23, 2009 2:32 PM
Jay, $80k definitely wouldn't get anyone a *liveable* one-bedroom condo around here. It may get you a shell of a row-home. I think I'm going to hop on the local real estate pages for fun and poke around that price range.......
Posted by: Laura | October 23, 2009 3:34 PM
You can file for the credit under your 2008 return by amending it our on your 2009 return. It doesn't matter that you would purchase the home in 2009. This helps persons who have a one time income bump or others who may be on commissions and don't know their income time the end of the year.
Posted by: Jim | October 23, 2009 8:52 PM
I am a first time home-buyer in Baltimore city and the tax credit is absolutely the biggest reason I even considered it in the first place. I hope it continues to be extended to make home-ownership financially viable to more people. In Baltimore city, if more people owned their own homes, we would see people more invested in the area around them. The criteria should be tighter so that we get the right money to the right people.
Posted by: Brent | October 26, 2009 12:06 PM