President Obama made it official earlier today – He signed into law an extension of the First Time Home Buyer’s Tax Credit. The tax extension is part of a $24 billion bill signed into law, which hopes to provide incentive for new home buyers as well as existing home buyers to purchase new homes. The original tax credit, part of the American Recovery and Reinvestment Act, is set to expire November 30th.
For first-time home buyers the tax credit remains a maximum of $8,000. A new home buyer is defined as someone who has not owned a home in the prior three years.
Existing home buyers have to have lived in their home for at least five of the past eight years. The available credit for existing home owners is $6,500.
For both groups, the income limit for single buyers is $125,000, up from $75,000 and for married buyers the income limit is $225,000, up from $150,000. Buyers must have a signed contract by April 30th, 2010 and they have until June 30th, 2010 to close. The home must be a primary residence (no vacation or rental properties) and cost less than $800,000. If the buyer uses the home for three years after the purchase it they do not have to pay the credit back.
Will it help though? Many feel the credit only speeds up the purchase of those who would be buying a home anyway. Others wonder if it helps at all. Consider this – an existing home buyer can get up to $6,500 in tax credits. But how much is this offset by the fact that the tax incentive helps keep home prices stabilized? An existing home buyer might be better off without any tax credits so that home prices could drop. Imagine a $500,000 home. If it drops just 2% from a slow economy then that’s $10,000. If the tax credit keeps prices level then our buyer actually loses out!
I think the credit will help those who are new buyers. The $8,000 can be enough to put them into a position to buy, especially in areas where housing is less expensive. If a new buyer can use the tax credit on their down payment then that is a huge help. But overall I’m not sure this is such a great idea. Home prices have been over-inflated so I don’t mind if they go down a bit more. This feels like we’re just propping up home prices.
What do you think? Is the new home buyer tax extension a good idea?
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Slighly frustrated that I don’t qualify for either of these, but that aside, this is the first year ever that I am looking forward to getting my taxes done! I’m not getting any of the big credits (aside from a back dated furnace purchase credit) but because I have been keeping tabs on my finances this year, taxes interest me more now.
Jesse´s last blog ..Black Friday: Tips, Tricks and Cautions
It’s real important to have a good tax person. Our accountant informs us of so many things we wouldn’t have knoen about otherwise.
Sorry to hear about you not qualifying.
The credit does help the price stabilize but this gap of lost value is probably less than $8,000. This is assuming the buyers as a whole are rational consumers and would not rush to buy in unless the cost/benefit equation works. Essentially the government is picking up the tab for the last $8,000 of home price declines (meaning making ALL the current and future tax payers pay for it) in exchange for accelerating the housing recovery.
It would feel really bad to have your home foreclosed and than realize that you are now required to subsidize the sale of that house as well as a tax payer in the form of a home buyer tax credit to the buyer.
Arohan´s last blog ..Investing in Economic Recovery
I’m not sure exactly what you mean by “gap of lost value?”
You say assuming buyers are rational consumers. Is that really an assumption we can make with regards to housing? If buyers were rational we wouldn’t have as much of a mess that the economy is in now.
Is the 800K maximum mentioned the cost of the new home or the old home?
There is mention that the buyer should have to have lived in their home for at least five of the past eight years
So it is a little confusing.
Thanks, Kenny