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November 6th, 2009

Update6: Obama Signs New Homebuyer Tax Credit

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UPDATE6: It’s a done deal. President Obama signed the “Worker, Homeownership and Business Assistance Act of 2009″ which institutes an extension and an expansion of the homebuyer tax credit.

The tax credit, which was due to expire on December 1, 2009, will allow first-time buyers to claim 10% of their home’s cost, up to $8,000. Buyers must sign their contract by April 30, 2010 and close by June 30, 2010 to qualify:

The bill also made more homeowners eligible to claim the credit on their taxes. First-time buyers — those who have not owned a home in the past three years — still qualify for an $8,000 rebate. But now people who want to trade up can also qualify. Those who have owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if they close on a purchase by the end of June.

From HousingWire.com:

New provisions accompany the extension. The credit is allowed for those with incomes up to $125,000 or $225,000 for taxpayers filing jointly. The credit reduces for those with incomes between $125,000 and $145,000 – or $225,000 and $245,000 if filing jointly. Anyone with an income higher than $145,000, $245,000 if filing jointly, cannot not receive credit.

UPDATE5 (published on 11/05/09): Like the Senate did yesterday, the House overwhelmingly approved legislation that creates a new structure to the homebuyer tax credit. The President is expected to sign the bill tomorrow that, beyond the tax credit, includes a 20-week extension to unemployment benefits:

One provision will continue for five months a popular $8,000 credit for many first-time home buyers, which was to expire Nov. 30, and create a $6,500 credit for some homeowners who want to buy a new residence. The other will allow businesses to deduct losses from their income in five profitable years instead of two; the stimulus law had limited the break to small businesses.

Check back in tomorrow for the complete details.

UPDATE4: Congress took one step closer to making the extension and the expansion of the homebuyer tax credit a done deal.

The Senate voted 98-0 to approve a bill in which the tax credit is included:

Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn’t owned a home in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.

The bill would also provide every American running out of unemployment insurance benefits this year with an additional 14 weeks of payments. Those in states with unemployment rates at 8.5% or greater would get six weeks on top of that. And it would allow companies losing money to reclaim taxes paid in the past five years.

“This is probably the last extension” of the real estate tax credit, said Sen. Johnny Isakson, R-Ga., a former real estate executive who championed the extension.

USA Today reports that the House could cast their vote as early as today.

UPDATE3 (published on 11/03/09): Lawmakers voted 85-2 in favor of sending the homebuyer tax credit extension one step closer to a final vote. Eric Wolff of the NC Times referred to the vote as “a cloture motion” that serves to end the debate on a bill. Several reports indicate that lawmakers could decide whether to extend and expand the first-time homebuyer tax credit sometime this week — possibly even as early as today. However, it’s not a done deal yet:

That’s unlikely to happen if Senate Republicans, unhappy that Democrats are blocking their amendments to the plan, force the chamber through a series of procedural steps before the final vote.

Unfortunately, we won’t know and understand all of the bill’s specifics until it passes (if it passes). What we do know so far is that the legislation, with a new expiration date of April 30, 2010, is striving to assist both first-time as well as “step-up” buyers, and will also allow buyers with higher incomes to participate:

Homebuyers who have lived in their prior residence for at least five years could receive a credit of $6,500. Couples earning as much as $225,000 a year and individuals earning up to $125,000 would qualify. That’s up from the current $75,000 limit for individuals and $150,000 for couples.

The tax credit was enacted as part of an economic stimulus plan in February. More than 1.2 million borrowers have claimed $8.5 billion of the $13.6 billion set aside for the homebuyer tax credits this year, according to the Treasury Department.

The Obama administration has endorsed the extension. The Joint Committee on Taxation estimated the revised homebuyer tax credit would cost $10.8 billion over 10 years.

Check back soon — we’ll keep you posted on the latest developments.

UPDATE2 (published on 10/29/09): There have been several leaks from different legislative sources on the details of what the “new” $8,000 first-time homebuyer tax credit may look like. Judging by the numerous stories we have read about the debate waging on Capitol Hill, the tax credit seems to stand a good chance to be both extended and expanded — not something we originally thought would happen.

Several proposals circulating through Washington call for the tax credit to be offered to both first-time and “step-up” homebuyers — or those who already own properties but are looking to upgrade.

While each draft has included some term of extension, one idea was to extend the program for an entire year, but slowly phase it out through 2010:

The $8,000 tax credit would fall to $6,000 in April, to $4,000 in July and $2,000 next October. It would end entirely on Dec. 31, 2010.

Multiple proposals want to increase the income levels for qualifying individuals and families, up to $300,000.

What About Cost?

Our “Update1″ section of this story (see below) said that one estimate pegged the program had so far reached about $10 billion in tax revenue. According to a Reuters article from yesterday, “Simply extending the current tax credit is estimated to cost $1 billion a month. Isakson’s proposal is slated to cost about $16.7 billion through June.”

Vote?

When lawmakers plan to vote on this issue is still uncertain as it will hing on which bill the tax credit is attached to. While the date of a possible vote is still unclear, what is rather clear is that a lengthy extension and a clause for step-up buyers could likely pass.

It’s A Question of Need

In a previous post we wrote that the National Association of Realtors claimed that the $8,000 first-time homebuyer tax credit was accredited for about of the year’s new home sales. Economist Paul Dales said the impact was closer to 30%. The figure we want to know is, what percentage of borrowers decided to buy a home simply because of the tax credit? That could really help determine just how important this initiative is.

What do you say?

UPDATE1 (published on 10/22/09): One of our readers, Chris, passed along a link to a TIME article from today which provides answers, or at least indications, to some of the questions we had asked in our original post below. While we still don’t know if the tax credit will be extended and/or expanded, we do have a better idea of what this program is costing us, and the scope of the fraud that’s surrounding it (emphasis added):

Treasury Inspector General for Tax Administration J. Russell George told a House panel that more than 19,000 people filed 2008 tax returns claiming the credit for homes they had not yet purchased. Russell said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.

The [IRS] says it has processed claims from more than 1.5 million individuals or families[...]that represented about $10 billion in tax revenue.

At one end, House Majority Leader Steny Hoyer, D-Md., says the program should be extended for a month while lawmakers take another look at how it is being run. On the other end, Sen. Johnny Isakson, R-Ga., with the backing of banking committee chairman Christopher Dodd, D-Conn., wants to extend it through next June 30, and expand it to include all home buyers, at an estimated cost of $16.7 billion.

Back in April, the question of “can I use my homebuyer tax credit as a down payment” created a real stir since mortgage professionals as well as the IRS quickly classified the action as fraud. We’re curious to how much, if any, influence the tax credit used as a down payment has had on the fraud numbers (seen above). We’ll keep you posted.

For more, read:
Update5 The Latest On ‘$8,000 Tax Credit As Downpayment’

Original post published on 10/20/09: According to HUD Secretary Shaun Donovan, a decision of whether or not to extend the $8,000 first-time homebuyer tax credit will be made in the next few weeks:

“And I’m committed–the administration is committed–to getting to that decision within just a couple weeks to make sure that the market doesn’t become interrupted,” [Donovan] added.

The tax credit — which is set to expire November 30 — has recently come under the microscope of the IRS. According to the Wall Street Journal, the IRS is examining some 100,000 “suspicious” claims, suspected to be either “unjustified” or “fraudulent”:

More than a million claims for the credit have been received so far, and housing-industry experts estimated that the credit has helped generate about 350,000 home sales that wouldn’t otherwise have occurred. But some lawmakers and tax experts now say there is evidence that a significant number of the claims might prove to be unjustified, or even fraudulent.

There are several factors which could delay or even end talks of an extension — fraud may just be one of them, cost could be another. Donovan told lawmakers today that the administration will not know the true cost of the first-time homebuyer’s tax credit until tax time:

The administration feels the urgency to make a decision soon but also wants to assess the costs of the tax credit before acting…

Donovan said the costs of the tax credit wouldn’t become clear until people filed their tax returns. That information isn’t easy to gather, he said. However, he implied officials could get hold of enough cost data to decide within the next few weeks on the tax credit.

Donovan told reporters that it was clear the tax credit has helped the housing market. “The real question is at what cost and that’s what we’re trying to get definitive information on,” he said.

With several (and costly) Federal housing programs running simultaneously, if reports (due in the next few weeks) find that the price tag has gone over initial expectations, the tax credit could be ended for good.

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11 Responses to “Update6: Obama Signs New Homebuyer Tax Credit”

  1. Lucia Says: October 20th, 2009 at 2:50 pm

    If the WH was for it, they would be promoting it. The delay tactic is a ploy for time, maybe in hopes something else will give them an easy out so they don’t look like the bad guy.

  2. Tim Manni Says: October 20th, 2009 at 3:29 pm

    Lucia,

    Hmmm, that’s an interesting perspective…hadn’t thought of it that way. The only issue I have with that is, I think it’s still too early, even though the supposed decision is only weeks away, for the WH to make a claim one way or the other. By Donovan’s reckoning, they still don’t know this tax credit’s price tag, and many analysts disagree with how effective it has even been. I think the WH is scared to endorse another “bailout type” of incentive — that’s why their housing assistance for the HFAs was so carefully structured with taxpayer protections.

    “…in hopes something else will give them an easy out…”: any idea what that may be?

    Honestly, I’d be surprised if they don’t extend the credit. If they in fact do not, I wonder if it will be b/c the WH feels the market is ok on its own, or they’re unwilling to spend more.

    Can’t wait to find out!

    Good to hear from you,
    Tim

  3. Chris Says: October 22nd, 2009 at 1:32 pm

    Tim,

    Did you see this Time article on IRS scrutiny of the home buyer tax credit? http://tinyurl.com/yjx5qra

    Chris

  4. Tim Manni Says: October 22nd, 2009 at 1:56 pm

    Hey Chris,

    No I didn’t see that — I’ll check it out. I wonder how much influence the fraud will have on a possible extension.

    What do you think?

    -Tim

  5. Tax Breaks Expanding For Homebuyers!! « Join.The.Fray Says: November 6th, 2009 at 2:46 am

    [...] [...]

  6. dolans (Ken and Daria Dolan) Says: November 6th, 2009 at 2:19 pm

    RT @HSHassociates: RT @dolans Senate approves homebuyer tax credit 98-0 “The Very Latest on the Homebuyer Tax Credit” http://bit.ly/NYJde

  7. homebuyer Says: November 7th, 2009 at 2:29 am

    Am I qualified. I purchased home in 2004 and sold it in 2008. by end of 2009, I will be buying home again. I would like to know if I am qualified as 2nd time home buyer for 6.5K credit. Pls help me.

  8. Tim Manni Says: November 9th, 2009 at 1:15 pm

    Hello homebuyer,

    If you have “owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if [you] close on a purchase by the end of June.”
    http://blog.hsh.com/?p=6422

    By this reckoning, you may have missed out since you only owned a residence for four years instead of the required five.

    Check out the IRG.gov to make sure.

    Thanks for commenting,
    Tim

  9. Steve Says: December 16th, 2009 at 12:38 pm

    Unfortunately most people don’t see how the bill discriminates against people who purchased homes in the spring or summer of 2009 and owned their prior homes for the 5 out of 8 year period. These people obviously contributed just as much to the housing market as the people who will purchase homes after 11/06/2009. So in other words, do it when Obama says or it don’t count. I am so glad I helped the contactors who needed work back in early 2009 and helped to keep them afloat. Thanks Obama for your understanding and appreciation.

  10. Tim Manni Says: December 16th, 2009 at 1:34 pm

    Hey Steve,

    Thanks for your comment!

    -Tim

  11. house buying tax credit Says: January 15th, 2010 at 7:22 pm

    house buying tax credit…

    Update6: Obama Signs New Homebuyer Tax Credit | HSH Financial … is an excellent post about the house buying tax credit….

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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