From the AP:
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.
“This is probably the last extension,” said Sen. Johnny Isakson, D-Ga., a former real estate executive who championed the credits.
The homebuyers tax credit is one of two tax breaks totaling more than $21 billion that the Senate included in a bill extending unemployment benefits for those without a job for more than a year. The other would let companies now losing money recoup taxes they paid on profits earned in the previous five years.
“We are still in a world of economic hurt, and Congress must continue to act boldly and creatively,” said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. “With the right mix of tax breaks and investments we will get through this recession and get folks working again.”
Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes. While the measure passed the Senate by a 98-0 vote, Sen. Kit Bond, R-Mo., questioned its efficiency in stimulating home sales.
“For the vast majority of cases, the homebuyer tax credit amounted to a free gift since it did not affect their decision to purchase a home,” Bond said. “And for the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place.”
The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.
A great discussion with Robert Shiller this morning – there’s an ad that plays first:
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=16352974&ch=4226720&src=news
More from NYT:
Investigators found that more than 500 claimants of the tax credit nationwide were minors as young as 4, so the new measure will require applicants to be at least 18. Homes cannot be acquired from relatives, and taxpayers must submit a settlement statement as proof of purchase, though officials acknowledge that could be a problem for those who file tax returns electronically.
While real estate groups and some economists say the credit has helped stabilize the housing market, critics say it is too costly a subsidy when low interest rates and home prices are incentives enough for most.
Of the 1.4 million claimants of the credit, fewer than a third — about 350,000 to 400,000 — are believed to have bought their homes because of the credit, according to independent and industry-affiliated economists.
Under the new legislation, individuals with income up to $125,000 a year and couples earning up to $225,000 would be eligible. The current income limits are $75,000 for individuals and $150,000 for couples. Under both the House and Senate versions, smaller amounts are available to people of slightly higher incomes until the credit phases out.
Even if the credit doesn’t increase home sales, it probably is a good stimulus for the economy. That is, I recently purchased a house, and I know I spent a lot more on repairs, upgrades, appliances, and furniture than I would have if the credit didn’t exist.
That is, I recently purchased a house, and I know I spent a lot more on repairs, upgrades, appliances, and furniture than I would have if the credit didn’t exist.
If I buy a house I’d do the same thing. In a way I wish they would have prevented it from being used for closing costs or down payments. It’s certainly a bit more targeted of a stimulus than anything else since a lot of things you buy for your house involve some local labor. At least it’s a better use of money than TARP or a giant stimulus package.
Yeah, I used my 8k in about 5 seconds after closing. In truth it didn’t affect my buying decision, but it was injected into the economy with lightning quickness.
For the move-up buyers to get the $6,500 do they have to sell their current home?
Jinx,
It’s unclear. We won’t know until the final wording of the bill is public (someone go check Thomas) and/or until the implementation is written up by the IRS. At a guess, no. I’ve heard nothing that says the old home can’t be rented out, just that the new home has to be the primary residence. However, in most of Cali, homeowners won’t qualify for their new house without selling the old one.
It still angers me that they put an income cap in. “You’re going to pay for this here party, but you can’t attend.”
Tax credit or no tax credit, your purchasing power is about the same – even more so now that the credit has been extended to move up buyers. How this would affect any rational person’s decision is beyond me.
Our brilliant US Government is officially entering the rental housing market:
http://abcnews.go.com/Business/wireStory?id=9004624
It’s obvious that our government is going to do ANYTHING and EVERYTHING to prop this sagging housing market. It’s beyond pathetic.
What happens when Mr Roper comes around to collect the rents?
Few people ask where is the Government getting the money for all this. I know where it comes from – increased borrowing, future tax increases and a sharp decline in the dollar. But no one cares – let’s pop another champagne cork!
It’s all a sham where the non-buyers are having to pay for the buyers’ new homes. The $8,000 doesn’t do a thing except pump up the purchase price thereby negating the gift. A friend in the real estate business pointed out the price of the median house was up 3.3% since the tax credits were introduced. That equates to just over $9,000 in increased value. Do the math.
It’s a total gift to the 85% who were going to buy anyway. The 15% who bought because of the incentive now sink deeper into debt they can’t afford.
There’s a huge shadow inventory out there. It’s not anywhere you can readily see, not on the banks’ books. It consists of all those with homes underwater; it consists of all those who stopped paying the mortgage and the bank is looking the other way; it consists of all those on the cusp of financial disaster with an option arm about to adjust.
shamshamsham —- you can’t beat them — corrupt government in cahoots with corrupt banks.
By the way – Hope is not a Strategy
JAP – the “sale leaseback” program with the gov makes me think of an interesting point…is it easier to evice a “tenant” not paying rent vs. going through the foreclosure process as it stands which gives people 2 years of free rent?
I’d rather stay as the defaulted owner for a long time than lose title and become a tenant who can easily be evicted
“..in both groups have to sign a purchase agreement by April 30, 2010,”
Jim – guess we start shopping on May 1, 2010
Good point Clearfund. I need to think more like a criminal -lol.
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JAP – the “sale leaseback” program with the gov makes me think of an interesting point…is it easier to evice a “tenant” not paying rent vs. going through the foreclosure process as it stands which gives people 2 years of free rent?
I’d rather stay as the defaulted owner for a long time than lose title and become a tenant who can easily be evicted
clearfund | November 5th, 2009 at 12:27 p
The way I see it, the buyer pool’s purchasing power goes up directly proportional to the value of the tax credit, so this is not a gift to the buyer but is instead a gift to the seller.
You could argue that purchasing power goes up even more than the value of the tax credit due to the leverage effects of using it as a downpayment source.
At the end of the day, this is a policy prescription meant to stabalize/raise nominal home prices. So buyers beware; you are likely not getting $8,000 worth of free money.
If I was a seller though, I’d be gettin out when the gettin is good. Unless, of course, the tax credit gets raised in April to $15K, 25K, 50K, 100K?????? Who friggin knows what’s going to be thrown at us next.
Buyers – not only do you not get $8,000 of free money, but once the tax credit support goes away home prices should fall by at least the same amount, all else equal.
Don’t believe me? Consider what would happen to home prices if the interest tax deduction rule was eliminated.
It all gets priced in.
I’m wondering about whether I can qualify for the $8K credit. I bought a house this year ($280K) in late spring. I am not a first time home buyer and I still own a house in Atlanta, however I have not lived in it since mid-2005.
As I understand it I can’t have owned a home in the past 3 years, but what if that home wasn’t my primary residence? I don’t want to violate any rules but if there is a way for me to get the tax credit, I certainly have alot of improvements I could sink it into.
If you can’t qualify for the credit stop by Genius’ house with a federal officer and tell him to cut you an $8,000 check.
Sounds immoral when you think about it in those terms, doesn’t it?
Call me STOOPID but what does this mean?
Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500
Does it mean if I bought my house 10 years ago I’m going to get a tax credit of up to $6500??????
I don’t get it. I thought it was only for new purchases?
Dummy,
I think that if you r a move up buyer you have to have owned your current house for @ least 5 years.So if you bought ten years ago, bingo, you qualify.
I am a little unclear about the term move up buyer myself.Does that mean you have to sell the current house and “move on up”?Were all going to be moving on up like the jeffersons soon.
Is instant equity back?The mantra of buy now cause houses are cheap?
I think to qualify you have to have a written agreement by April 30th, and first-timers get $8,000, the existing owners get $6,500.
They are still working on the final details, we should see the finished product tomorrow after Obama signs it.
The last week of April will circus-time for realtors.
So we have a $70 tax on every person in the US going to buyers of overpriced homes, so the price of these homes can stay overpriced. And overpriced homes bring in more sellers to market and more home building, pretty much negating any tax credit. Nice.
According to Bankrate, you’ll have to sell your home to qualify for the $6,500 credit.
“A $6,500 credit also will be offered to existing homeowners who sell their current property and purchase a primary residence that costs $800,000 or less.”
http://www.bankrate.com/finance/mortgages/homebuyer-tax-credit-extended-and-expanded.aspx
Oh thank you. I didn’t catch the “you need to sell your home first part”
I read things too literally.
I haven’t seen it mentioned any where else about having to sell your current home. So either Bankrate has details that others don’t yet have, or they’re making an assumption.
Will someone post the details when Obama signs the darn thing?
The new law has more generous phase-outs. The credit now begins to disappear for single taxpayers with modified adjusted gross incomes of $125,000 and married couples with incomes of $225,000. It is available for purchases through July 1, 2010 if the buyer has a contract in place before May 1, 2010. Unlike the prior law, however, this credit is capped: those buying homes for more than $800,000 get no credit at all, as of Nov. 6. FROM WSJ
The new law also authorizes a similar $6,500 credit for buyers who already own a home. It too is a refundable credit for 10% of the purchase price of a house costing no more than $800,000.To qualify the buyer has to have owned and lived in the same home for five of the eight years preceding the new home purchase, and the new home must become the buyer’s principal residence. There are interesting twists. Two or more unmarried people buying a house together may be able to allocate the credit as they wish, say to the lowest earner. Taxpayers who buy this year may also claim the credit on either a 2008 or 2009 return, and those who buy in 2010 can claim the credit either in 2009 or 2010. Some people claim the credit in one year rather than another to avoid phase-outs.
here are more details on the credit.
http://money.cnn.com/2009/11/06/real_estate/tax_credit_extended/index.htm?postversion=2009110615
Didn’t the $8K tax credit have to be repaid over a period of time? Wouldn’t that also apply to the extension of the credit? I haven’t seen anything that talks to that.