The Obama administration's first time homebuyer tax credit, arguably one of the most effective pieces of the American Recovery and Reinvestment Act signed in March of last year, has been extended for an additional seven months to include sales through June 2010. With this extension also comes the expansion of the program's guidelines, initially only allowing first time homebuyers up to an $8,000 credit on purchasing their home. The program will now allow repeat buyers a credit of up to $6,500, as well as establishing a higher qualifying income limit. Experts agree that this extension will continue to help the real estate market, based on the progress seen so far with the homebuyer's credit, which was initially set to expire on November 30, 2009.
The program for first time homebuyers allows a tax credit for up to $8,000 or 10% of homes valued at up to $800,000, and it is available to homes purchased after January 1, 2009 and before April 30, 2010. The date can be extended to June 30, 2010 if a binding sales contract is signed by April 30th and the home purchase is completed by the end of June. The timeline is the same for repeat homebuyers, who qualify if they have owned a home for five consecutive years out of the last eight. A couple cannot qualify for the first time homebuyer's credit if either has owned a home before, though they can still be eligible for the repeat buyer credit.
Members of the military, foreign services and intelligence community who qualify for the tax incentive have been given a few exceptions to the guidelines based on the fact that duty often requires them to move frequently. Selling a home purchased with the tax credit within three years would typically disqualify someone from the program, but active members of these communities will not be subject to this, and they will have an additional year to employ the tax credit, including sales through June 30, 2011.
The qualifying income limit has changed as well, which leads to higher-priced homes becoming part of the administration's housing overhaul. The new guidelines allow a person filing singly to earn up to $125,000 and married couples filing jointly can earn up to $225,000 gross income. Previously, an individual could only earn up to $75,000 to qualify or $150,000 for a couple. The change in income requirements applies to both first time and repeat homebuyers. Sales occurring after January 1, 2009 and before the bill was signed on November 6th must use the old income requirements. Areas hit the hardest by the housing crises have tended to be regions with many upscale and higher priced homes, such as California, so there is hope that this new income guideline will bring much-needed help to such states.
The credit is included in the "Worker, Homeownership and Business Act of 2009" that was signed into law by President Obama on November 6th. The tax credit does not need to be repaid by either first time or repeat homebuyers unless they sell the house or are no longer using it as their primary residence within three years of receiving the credit. The bill comes at a time when national unemployment has officially topped 10% and the effect which joblessness is sure to have on the housing market is a major concern.
Arguments continue over the true effectiveness of the homebuyer's tax credit, with critics saying it is far too expensive and mainly attracts people who were going to buy a home anyway. Reports prompted by the House Ways & Means Oversight subcommittee and headed by the IRS inspector general also indicate that as many as 74,000 buyers claimed the tax even though evidence showed that they had owned a home in the past, confirming that there are some cracks in the system.
The National Association of Realtors, which had been one of the strongest proponents for the extension of the homebuyer tax credit, put out a survey following the passage of the bill in November to gauge the actual effectiveness of the program. They found that only 6% of those who had bought a home for the first time in the 12-month period ending in June 2009 had done so because of the tax incentive. Lower prices coupled with the low interest rates that swept the housing market following its crash last year were much larger factors in many people's decision to buy a home. Still, many see the tax incentive as playing a role in the amount of first time homebuyers that made a purchase, as well as the very low housing prices the last two years have seen.
Experts argue that this tax credit will provide an incentive to those more reluctant to sell their homes in the current market because it could potentially offset a lower selling price. They expect many homeowners who have been in their houses for awhile will be prompted to sell now that repeat buyers can take advantage of the tax credit.
Some state legislatures have tried to produce similar packages so that home sales will be boosted through local programs as well, but state funding has come up short in many instances, killing the bill or forcing already existing programs to end. For example, California's state tax incentive program was cut short in July when the state budget could no longer support the program amidst one of the weakest economies the state has seen. Scenarios such as this underline why the federal government has made the homebuyers' tax credit a priority and invested so much of the recovery funding in this program.
