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November 6, 2009

Expanded home buyer tax credits to become law

It took a while for the Senate to hammer out an agreement on the home buyer tax credit, but only a day for the House to pass an identical measure. President Barack Obama is expected to sign it into law today.

The National Association of Realtors says the new provisions -- a longer time frame for the $8,000 first-time buyer credit, higher income limits and a $6,500 credit for certain repeat buyers -- will go into effect as soon as pen hits paper. The trade group has a handy "compare the tax credits" chart that you can find here.

You can also read more about the details on yesterday's tax-credit blog post.

The first-time buyer tax credit, hailed by the real estate industry as a stabilizing force for the battered housing market, has its critics. They say it's a lot of money, much of it going to people who probably would have bought anyway and some of it going to tax cheats (including 19,000 who didn't actually purchase a home). Some of you have said you think it's a stimulus that won't help in the long run.

In this running Wonk poll, I asked you a simple question about the bill: Thumbs up, down or sideways? The voting was overwhelmingly thumbs up at first. But as of last night, the results were split: 49 percent down, 47 percent up and 4 percent sideways. 

I chatted yesterday with Heather Fernandez, vice president of marketing with real estate search engine Trulia. She's enthusiastic about the soon-to-be-law, though not without reservations. One reason to cheer, she said, is that consumers pump money into the economy after buying a home ($30,000 within the first six months on items ranging from furniture to hot water heaters, Trulia found in a study last year). She also thinks the credits will help move more foreclosures and cushion prices in the short term.

There's a significant "but," though: "What happens to real estate demand on May 1?" Fernandez asks. April 30 is the last day you can sign a contract and still qualify for the first-time or repeat-buyer tax credits.

"While this may spur tremendous activity in the short term, what's going to stop demand from dropping off a cliff?" she said.

We'll know when we get there. U.S. Senator Johnny Isakson, the Georgia Republican who championed an expanded tax credit (his proposal: $15,000 for every buyer), said in a statement Wednesday that this third version of the tax-credit program is really and truly the last one. "Tax credits like this only work by creating the sense of urgency to take advantage of them," he said.

Fernandez said one thing's for certain: The credit extension and expansion has a lot of people thinking about real estate. When we talked yesterday afternoon, Trulia's traffic was on track to be the best ever for a Thursday. For that to happen in November -- during housing's slow season -- is really something, she noted. Trulia launched in 2005.

I asked you in another recent Wonk poll how the credit would affect you. Here's what you said, as of last night:

26 percent: I'd qualify as a repeat buyer, and I plan to sell my current home and buy another one

20 percent:  I'm a taxpayer, that's how it affects me. ARRRGGGGH.

16 percent: I don't qualify as a first-time or repeat buyer, to my frustration

10 percent:  I already got a first-time home buyer tax credit

7 percent: I'd qualify as a first-time buyer, and I plan to buy my first home by April 30

5 percent: I'd qualify as a repeat buyer, and I plan to buy but not sell

4 percent:  I'd qualify as a first-time or repeat buyer, but I'm not planning to buy soon

4 percent:  I work in the real estate industry and hope it'll help business

2 percent: I don't qualify as a first-time or repeat buyer, but I don't mind

And a few of you wrote in your own answers. For instance, "It would make it easier for me to sell my house to a first-time buyer." And: "I'm a repeat; my spouse a first-time. Unsure if we qualify for any credit together."

Married couples can't qualify for the first-time credit unless both of them are first-timers under the rules (which actually define a first-time buyer as someone who hasn't owned a principal residence for the previous three years). But I don't see why a couple that's half repeat-buyer, half first-timer couldn't get the repeat buyer credit as long as they qualify on income. (Let me know if you hear otherwise.)

The IRS answered lots of scenario questions about the first and second versions of the first-time buyer credit. Presumably the agency will do the same for this expanded credit program.

Comments

If I bought a home in April 2009 and make over $175,000 per year (couple) will I now get the full $8,000 credit, or just the phase in?

So basically, I bought a $600m home in March '09, in the middle of a real estate melt down, can't claim the 1st time homebuyer credit because my wife owned a condo prior to us getting married, can't claim the repeat buyer credit because it's not retro active for all of '09, and even if it was, my wife only owned the home for 4 years and 8 months, which was her 1st home. Could they write these rules any better to exclude us? Ridiculous.

Tax Credit Update – I updated my post to include a link to FAQ’s on the new credit..Also there have been a lot of good questions and answers on the topic which are there also…link to the update is:

http://realestateconsumernews.com/financing/home-buyer-tax-credit-extension-update-house-passes-bill-on-to-president-for-approval/

Most frequently asked question with an answer from the National Association of Realtors is:

Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a
new home. I have lived in my current home for more than 5 consecutive years and
am within the new income limits. I will go to settlement on November 20. If
President Obama has signed the bill by the time I go to settlement, will I qualify for
the new $6500 tax credit?

Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment
(when the bill is signed). There is no reference to the date of contract for the new credit. The
provision looks solely to the date of purchase, which is generally the date of settlement

T: No, from what I've seen the new limit is only for transactions that occur AFTER the new rules are enacted.

For a repeat/first time "mixed" household, the repeat is the one that counts. You ONLY get the first time credit if both people on the deed are first time homebuyers.

What if I'm in a mixed household (1st time / repeat) where I'm the 1st time buyer. My wife was the only one on the deed for her prior home, and I am the only one on the new deed. Can I claim either?

These laws are not for the people. They are geared toward the real estate construction and banking industries who actively lobbied for this credit in the senate. In order to boost demand for their stagnant product. In essence this is corporate socialism but no one wants to say that. If it was helping the people in any way, we would have 5,000 people protesting at the capital demanding we don't need socialism (But I bet those people lined up for the free H1N1 flu shot and they didn't see that as socialism). For the vast majority of home owners who make their payments on time monthly. These bills do nothing but take their money and feed it to the construction, real estate, banking and other industries. In the end you'll probably see another mini bubble burst in 2011 and 2012 when these potential home owners can't make their payments. Unfortunate for them but good for the real estate agents, real estate lawyers, construction companies like Pulte and Ryan Homes who by that time have deposited the money and don't care what happens to the people. This is a basic issue about Corporate America screwing the people. If they really wanted to give us an incentive, they would lower my taxes or temporarily elimianate the tax on food and gas.

I sold my house and closed this in August 2009 to have a new "move-up" home built. I expect to close in January 2010. I am currently renting in the meantime. Am I eligible for the $6,500 or because I am not currently an existing home owner do I miss out?

This makes me sick. We have lived in our home for 4.5 consecutive years and are closing on a new house next week so we don't qualify for the credit? Cut taxes for EVERYONE...! Don't pick and choose which citizens you would like to give tax credits to.

We sold our home April-09 that we had lived in for nine years. We have since retired and purchased another home. Do we qualify for this credit?

There seems to be conflicting posts above regarding eligibility date;
date of contract versus date of sale (closing). I have a customer closing
soon using a reverse mortgage HECM) for purchase. They are asking if they will be
eligible for the $6,500 if they close after Obama signs the bill.

Hi,
we closed on our first home Nov 4th 2009. Our combined income is less than 225000. We didn't qualify for the 8000$ credit as our combined family income was over $200000.
As per this bill the new increased limit is applicable from Nov 5th. Does this mean that we don't qualify for the tax credit at all?

Jon asks, "What if I'm in a mixed household (1st time / repeat) where I'm the 1st time buyer. My wife was the only one on the deed for her prior home, and I am the only one on the new deed. Can I claim either?"

I don't think so. The IRS says both spouses must qualify as first-time buyers for either to claim the credit, and to get the repeat-buyer credit, you can't have closed on the sale before it's signed into law. But don't take my word for it.

Jason T asks, "I sold my house and closed this in August 2009 to have a new "move-up" home built. I expect to close in January 2010. I am currently renting in the meantime. Am I eligible for the $6,500 or because I am not currently an existing home owner do I miss out?"

I don't think you'd qualify either. The key for the repeat-buyer tax credit seems to be that you can't have sold the previous home before buying the new one, unless I'm misreading it.

Joe D asks, "We sold our home April-09 that we had lived in for nine years. We have since retired and purchased another home. Do we qualify for this credit?"

No, because you purchased the new home before the change went into effect.

sowms asks, "we closed on our first home Nov 4th 2009. Our combined income is less than 225000. We didn't qualify for the 8000$ credit as our combined family income was over $200000. As per this bill the new increased limit is applicable from Nov 5th. Does this mean that we don't qualify for the tax credit at all?"

That's the way I'm reading it.

Sorry, folks. But you might want to ask a tax expert later in the month, when things might be clearer.

Mac Tennant wonders if the effective start date refers to contract signing or closing. I tried to get some clarity on that but haven't gotten an official answer yet. (I'd guess that the key is closing, but only time and the IRS will tell.)

Hi, I own a 4-pleax for 12 years and have lived on the premises for the entire 12 years. I just purchased a home that is closing 12/1/2009 and rented out my apartment. I plan to sell the four plex when the market comes back up. The rents have always paid for the mortgage and expenses. Never a problem with that. Will I qualify for the repeat buyer credit program.

Barbara, I don't know how the IRS will view combination rental/primary residences. It's a good question, but we'll have to wait for the IRS to answer it.

While you're answering questions:

I own a house, have for less than five years. I married someone who owns a house, more than five years. We rented out mine and are selling his this month. We are jointly buying a house next month. Do we get some or all of the repeat buyer credit for the new place?

mhc, that's a good question -- one the IRS will need to weigh in on. The agency has said that both spouses must qualify as first-timers to get the first-time buyer credit, but I'd be surprised if it says that both spouses must qualify as repeat buyers to get the $6,500 credit. We'll see ...

Thanks for the reply!

I have a suspicion we might have to file separately to get it, which doesn't make sense for us - but it certainly would be nice to pick up at least half of it. We'd promise to spend it quickly and everything!

I am recently divorced. My ex-husband payed me my half of the equity for our house that we have lived in for the past 7 years and he is still living there. I have been in an apartment until I close on November 20, 2009. Do I qualify for the tax credit because I didn't actually sell my house and because I am closing before December 1? I can't find my situation anywhere.

Jennifer, it sounds like you qualify. The key is buying a new primary residence, and that's what you're doing. I've seen reporting on the credit that specifically says repeat-buyers do not have to sell their previous home, only occupy the new one as their primary residence.

Here is a situation that I have not be able to find an answer to. My wife owned a home prior to our marriage, my name has never been on the mortgage, title / deed. We have lived in the home together for 9 years. We have been filing taxes jointly. We are in the process of finalizing our divorce (Jan, 2010). I am claiming no ownership or monetary interest in the home in the filing. Here is the question(s): While it sounds like I would not be able to claim the first time buyer credit, even after the divorce is final, would I be able to claim the repeat buyer credit? If I do qualify can I purchase the home that my wife currently owns and take either credit?

LK, this is a murky issue. The IRS has said that "marriage (and legal separation) imputes ownership of a previous home upon the other spouse," even if the spouse's name was not on the deed. I'm not sure how the agency views it after the spouses are divorced. Seems to me that you'd either be considered a nine-year homeowner or a first-time home buyer, but that's a question for the tax experts.

As for whether you could buy the house from her, the IRS says people cannot take the credit if they purchase a home from a "spouse, parent, grandparent, child or grandchild." Not sure how ex-spouses fit into that.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
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