Will The $7,500 Tax Credit For First Time Homebuyers Get New Teeth?

On January 15th the House Democratic Leadership released information concerning the proposed $825 billion economic stimulus package. Part of the package includes a proposed improvement in the Tax Credit of $7,500 for first time homebuyers that was part if last years Housing and Economic Recovery Act (ACT) enacted in July 2008.

Under the ACT a first-time homebuyer buying a principal residence is able to claim a tax credit of 10% of the purchase price up to a maximum of $7,500.  The definition of a first-time homebuyer is an individual or married couple that has not owned a principal residence in the previous three years. The ACT set the time period for this credit from April 9, 2008 through July 1, 2009.

A part of the ACT that has been less publicized is the income limits. The credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000 ($150,000 for married filing jointly.) For taxpayers not filing a married joint return the tax credit is completely phased out when the modified adjusted gross income exceeds $95,000 ($170,000 for married filing jointly.)

Under the current ACT the credit is repayable over a period of 15 years. In essence, it is an interest free loan. There are some instances where the entire credit would not have to be repaid. Because of this repayment requirement it is believed that a relatively few consumers have been attracted to the plan.

The new proposal would change eliminate the repayment requirement and make this a true tax credit. By some industry estimates eliminating the repayment requirement could lead to an additional 202,000 home purchases this year. The National Association of Realtors is working to get the deadline extended from July 1st to December 31st. This would increase the number households able to tax advantage of the credit and would lead to an even larger increase in home purchases.

There is also a proposal to increase the maximum loan in "high cost" areas from $625,500 back to the $729,750 that was part of last years economic stimulus package.

Both these proposals could have positive effect on real estate sales in 2009. I will continue to monitor the progress of the legislation and keep you posted on it's progress.

Call me with any questions you have concerning the current market.