The announcement that the federal government has finally made a formal decision on the extension of the tax credit is good news. As a real estate agent, the last several months have been very difficult (and stressful) for those of us who are assisting first-time homebuyers. With the (original) deadline of December 1 quickly approaching, my client(s) have been in “hyperdrive” trying to find the perfect inexpensive home and get into escrow in time to meet the deadline. I’m sure I’m not the only real estate agent experiencing this scramble, and the result in many cases is the homebuyer making a poor decision(s); possibly paying too much, or choosing a home that doesn’t meet all of their needs. The competition for buying good starter homes (at least in the Phoenix area) has been very tight in the past 3 months, and in many cases a good property is obtained only through a bidding war.
Alas though, it looks like we now can look forward to a brief reprieve before we begin the scramble again. And even more good news, we’ll be able to include move-up buyers in the mix! A brief summary of the details on the new plan which is effective November 6, 2009 follows:
First Time Homebuyer Tax Credit (FTHB). The $8000 tax credit will continue to be available for first-time homebuyers only (defined as an individual who has not owned a principle residence during a 3-year period prior to purchase). The $8000 is a maximum credit amount, based on a calculation of 10% of the home’s value (therefore the home purchase price must be $80,000 or more to obtain the full credit). Individuals that currently own second homes or vacation homes but have not lived in them for the past 36 months may still qualify.
Dates of Eligibility for Credit(s). The credit is available for homes purchased on or after November 6, 2009 and before June 30, 2010. To qualify for the tax credit(s), you must have a signed (ratified) purchase contract by April 30, 2010, and the transaction must close escrow by June 30, 2010.
Move-Up/Repeat Homebuyer Tax Credit (MUHB). An individual (or married couple) who has owned and lived in the home as their principle residence for any 5 consecutive year period during the 8 year period ending on the date of purchase of a new principle home will be eligible for a up to a $6,500 tax credit ($3,250 if married filing separate).
Income Limits Increased. The tax credit(s) begins to phase out for a single individual whose income exceeds $125,000 (up from $75,000 previously). For married couples, it begins phasing out at $225,000 (previously $150,000). It is fully phased out at $145,000 for single taxpayers, and $245,000 for married taxpayers filing jointly.
Maximum Home Value. There is a purchase cap of $800,000 (there was no cap in the previous version).
Special Exemptions and Extensions for Military. For military personnel, members of the Foreign Service of the United States, and employees of the intelligence community: If such individual serves on official extended duty outside of the United States for at least 90 days between December 31, 2008 and May 1, 2010 the deadline for entering into a binding contract to purchase a home will be extended to April 30, 2011. Closing must be before July 1, 2011.
Proof of Sale. The individual claiming the tax credit will now be required to attach a properly executed copy of the settlement statement used to complete the home purchase to their tax return.
For a full explanation of the new legislation, go to www.federalhousingtaxcredit.com/. If you purchased a home between January 1, 2009 and November 6, 2009 your purchase will be covered under the original tax credit guidelines.
The reality is that for those folks that qualify for these incentives, this is a great opportunity. For the rest of us who don’t quite fit the requirements, the news is that we are going to be paying for everyone else’s “good fortune” through our own income taxes for a long time. Is this program really stimulating the recovery of the housing market, or will it simply revert back to the dead zone once the incentives pass? Hard to say, but I do hope it works as the government is banking on – after all, it is our money that is being handed out.
Readers, what do you think about the latest round of handouts to the public? Give us your humble opinion by leaving a comment!
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I have seen several discussions on various sites regarding this issue. There have seen good arguments on both sides. From a personal point of view, in working with people to improve their credit, it also gives us a breather as we do have some clients who were feeling the pressure and now can make decisions without feeling they have to jump at the first opportunity.
The debate seems to rest on whether this will cost us too much in the long run. I did read a good response that talks about the ‘stimulus’ we get every time a home is purchased. With the purchase come the additional needs of moving, furnishing, fixing up, etc. which in turn puts more into the economy over time. The good thing about the tax credit is, (if used properly) it will help take care of these things without putting additional strain on the buyers budget.
Also being in the Phoenix area, nothing seems to be more damaging to neighborhoods than empty houses which are targets for all sorts of bad behavior.
As far as I can see, the program at least gets people more active. I have to believe this is better for our economy than stagnation.