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November 11, 2009

Home buyer tax credit update

The "do I qualify" questions keep pouring in about the revised $8,000 tax credit for first-time home buyers and the new $6,500 credit for certain repeat buyers. Here, for instance. And here. And also here. I'm hearing many variations of the same questions, so let me sum them up for you:

Q. When do the new provisions -- the higher income limits and the repeat-buyer credit -- go into effect? 

The IRS has weighed in on this one: for purchases made after Nov. 6. To get in before the credit program is due to expire, you'll need to sign a contract no later than April 30 and close on the deal no later than June 30.

Q. I qualify as a repeat buyer because I've owned my home at least five years, but I married more recently and my spouse would be considered a first-time buyer. Do we qualify for either credit if we buy a new place, or are we out of luck?

I couldn't tell from the legislation, so I called the IRS to find out. Spokesman Jim Dupree says the agency needs a bit more time to work through details like this one. "It's new legislation," he noted. "We should get some new guidance very soon -- any day now."

When it does, he said, it will update the agency website. The IRS answers questions about the older versions of the first-time buyer tax credit here, for instance. (One of its Q&As says a married couple can't get the first-timer credit unless both of them meet the requirements, even if they file separate tax returns.)

Q. I've been a homeowner for the last 10 years -- six years in my first home and four years in my current home. Do I qualify?

No. The legislation says individuals must have been in "the same residence" for "any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence."

Q. I don't want to buy a new home, but I've owned my current home for at least five years. Am I eligible for the $6,500?

Er -- you do realize this is a "home buyer tax credit," right?

On a non-Q&A note, I thought you'd be interested in what Kevin A. Hassett of the American Enterprise Institute for Public Policy Research had to say about the tax credit program:

"It's actually kind of insane that they have renewed it," he told me for today's story on the Baltimore-area housing market.

Hassett, whose conservative-leaning think tank promotes free enterprise, thinks it's a bad idea for several reasons:

--Fraud. Tens of thousands of people got the money even though they didn't qualify as first-time buyers, weren't buying anything, weren't old enough to go to grade school, etc. The new provisions require that buyers attach their settlement statements to the tax form to prove they made a purchase, but Hassett doesn't see how this will do anything about repeat buyers getting the $8,000 meant for first-timers.

--What happens when the credits end? "We're pulling activity into today from the future," he said. "Tomorrow, we're going to have to pay."

--Tax dollars for some. "We're taking money from people who earn it and giving it to people who are claiming that they bought a house," he said. "I think that that kind of moving money around, it's the height of big government hubris. ... It's not the government's $8,000 that they're mailing to these people. It's your $8,000."

There's been a lot of discussion, including among you Wonk readers, about whether the credits are a good idea. As of last night, 50 percent of you had given them a thumbs down in this Wonk poll, 46 percent said thumbs up and the rest offered a thumbs sideways.

The thumbs-down sentiment isn't all anti-credit -- some of it comes from readers frustrated that they don't qualify. Wonk reader Sean wrote, "Unbelievable - my wife and I upgraded to a larger home (expecting a child), had to rent our condo due to market conditions, bought a new house 4 weeks ago and have already sunk upgrade dollars into it. We are exactly the type of couple who are helping grow the local economy yet stand to gain absolutely nothing since this is not retro-active. Very glad to see my tax dollars benefit everyone else."

Caro, a reader in favor of the credits, weighed in with this comment: "I think the idea is to reduce the inventory of homes for sale so that our home values can stop dropping so fast. It is better to give a tax credit to home buyers, rather than more bailouts for Wall Street and the banking industry."

And semiconscious is in the no-thanks category: "Everyone should stop and pause to think where this money comes from. The most insidious tax is the tax of inflation. It erodes the purchasing power of fix income individuals, and benefits the banks who are closest to the Fed spigot of free money. This bill is another government step to prop up the banks whose balance sheets are fairy tales."

What's your opinion?


Thanks for this info. I am helping my 80-something mother-in-law, who has lived in the same house for 50 years or so, buy a condo closer to my wife and I. It sounds like, as long as it is a new principal residence, she can claim the credit! GREAT!!

I am helping my mom downsize into a smaller house and I can tell you that the 1st time homebuyer inventory is depleted and whats left out there is overpriced and in bad condition. I found one propertythat my mom like and when we looked at the comps it was overpriced by 30K. Most of the otherhouses were priced about the same but in worse condition. This credit seems to be doing more harm then good by inflating home prices where buyers felt pressured to buy before the deadline. We might see an temporary increase in price but I can't imaging what's going to happen once this credit is gone for good. This credit is just creating a smaller bubble.....especially if unemployment doesn't start declining

Any chance they'll back-date the trade up home buyer credit. We purchased a new home in July.......seems like we don't get any perks at all from anywhere. We don't owe any credit cards, didn't walk away from a mortgage or other financial responsibility, pay our bills and taxes on time.....

I closed on November 6th. Am I eligible for the $6,500. Obama's Pen hit paper on November 6th.

Tina, I'd be very surprised if they later backdate the trade-up credit. I say that only because they could have done so when they wrote the legislation and chose not to.

Bill, the IRS has spoken on this one -- sales AFTER Nov. 6. The legislation itself says the provisions "shall apply to residences purchased after the date of the enactment of this Act."


My wife bought and has owned our current home since 1998. I met her in 2005, We married in 2006 and refinanced the house with both of our names on the mortgage that year. I have no previous home ownership history. Would we qualify for the 'repeat buyer' credit?

Richard, I addressed your question in this post. Look again -- the answer is "we'll have to wait to see what the IRS says." (Assuming you mean, would you qualify for the credit should you two buy a new place. If you're not planning to buy a new place, then no, you don't qualify.)

Folks, I'm happy to try to help, but please -- please -- read what I've already written on the topic. I don't have enough hours in the day to tell every American whether they qualify for the credit, and it sure feels like I'm getting questions from all of you.

We sold our previous home in June 2009 and purchased a bare lot with construction financing in July 2009. We have been renting a home temporarily since. Our new home is nearly complete and we are looking to close on the permanent loan on November 20, 2009. Would we qualify for the $6500 repeat buyer credit?

Ronda, the IRS hasn't weighed in on this yet. But with the previous version of the credit, it had this to say: "For a home you construct, the purchase date is considered to be the date you first occupy the home."

I have been in support of, and an advocate for, extending and expanding the homebuyer tax credit program- While I realize it is just a shot in the arm, or short-term fix, I still believed it to be in the best interest of the housing market...However, Ted Gayer from Brookings Institute, firmly believes the credits are a bad idea and shows the $8,000 credit actually costing $121,000 - his complete post and details is at:

I am a second time home buyer, but I had my closing October 31, 2009, Do I qualify for the $6500 credit even though they say it's purchases made after Nov. 6 ?? Am I eligible for anything?

Sorry, Chris -- no. Purchases made after Nov. 6 means purchases made after Nov. 6.

I have lived in my home for over 5 years; would like to buy acreage by April 1, 2010 and build on it (to live in as primary residence) in 2010 or 2011, at which time I would sell current house. Would I qualify for the $6,500 tax credit for the land purchase? Thanks!

if i am a first time home buyer in 2010 before the deadline for the tax credit and before i file my 2009 taxes can i claim the purchase in 2009 or do i have to wait to claim it next year for the year 2010?

Frank, the IRS has said in earlier iterations of the credit that people constructing a new home don't qualify until the date they occupy the place. So it sounds like you wouldn't qualify if you're planning to construct after the credit expires.

Nancy, I believe you can claim the purchase on your 2009 taxes. The IRS has noted that people purchasing this year after they filed their '08 tax return could file an amended return to get the credit immediately.

I owned a home from 99 until June 08, and lived in it from 99 until 09/07. Before I sold it I bought another home in Sept 07 that I lived in for 2 years ( I still own it). These 2 homes are in PA. I recently got a job in KY and bought a condo on Nov 30, 2009. Do I qualify for the credit?

Joanne, to qualify for the $6,500 credit, a taxpayer must have owned and lived in one home for five consecutive years of the last eight AND the next home purchased -- the credit-eligible one, in other words -- must have been purchased after Nov. 6.

So -- nope, sorry.

I purchased a piece of land in October 2008, entered into a building contract in May, 2009. The house will be done in March, 2010. Do I have to calculate the cost of both the land and building contract in order to qualify for the homebuyers credit? The total of the two exceeds $800,000. Is there any way to get around this?

Mary, you might want to consult a tax expert, but I'd be very surprised if the IRS doesn't consider the land plus the construction cost to be the total cost of the house.

Anyone have different information?

MY family is helping my uncle downsize into a smaller house and I can tell you that the 1st time homebuyer inventory is depleted and whats left out there is overpriced and in bad condition. I found one property that my uncle liked and when we looked at the comps it was overpriced by 40K. Looking forward for help.

I purchased my 2nd home in September of 09(5 years after my original 1st time purchase) then while I was preparing my taxes I did not qualify for the $6500 tax credit as it did not start until November of 09. Is there a way I can appeal this deicision?

Jim, you can complain to your congressional representatives if you'd like. But I don't think it's worth your time. The $6,500 credit didn't start until November because it wasn't voted on until November.

Saying you ought to qualify because you bought two months earlier is a little bit like the buyer of a 2009 model car complaining when he finds out that 2010 versions come with a free sunroof.

But if you're mainly annoyed that the government is giving away credits to certain buyers, you're hardly alone.

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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.
Baltimore Sun articles by Jamie

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