The much talked about $15,000 home-buyer tax credit died silently behind closed doors, during negotiations between the House and the Senate last week. Apparently no memorial service will be held.
The brand new $787 billion stimulus bill that President Obama just signed into law Tuesday, does include a trimmed down version still aimed at reviving the real estate market.
Although the exact details of the stimulus bill have been few and far between, this is what is believed to be true about the home buyer credit in this new plan:
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The new Stimulus bill includes an $8,000 First-Time Home Buyer Tax Credit.
Here are seven things you need to know about this newly created provision:
1. Only For New buyers: This credit will be only available to first-time home buyers, who purchase a home between January 1 and November 30, 2009. It will be the lessor of $8,000 or 10% of the value of the home. Remember a tax credit is very different than a tax deduction - a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income. But unlike the earlier $7,500 home buyer tax credit passed last year, this one does not have to be repaid.
2. Eligible Property: Any single family property that will be used as a primary residence. Condos, co-ops and townhouses qualify, as long as they will be used as the primary residence.
3. First Time Buyers Defined: A "first-time home buyer" is someone who hasn't owned a principal residence for three years prior to the purchase of this home. (The date of purchase is considered the day that the title is transferred.) That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still qualify for the credit.
4. 2009 Buyers Only: Only those who purchase a home between January 1, 2009 and November 30, 2009 are eligible for the credit. Anyone who bought a home last year won't be able to take advantage of it.
5. Income Limits: The tax credit is subject to limitations, and starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.
6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions may be made in certain cases, such as death or divorce.)
7. Refundable: this credit can reduces or eliminate income tax liability for the year of the purchase. Any unused amount of the tax credit will be refunded to the purchaser when a future tax return is filed.
Is this new home buyers credit worthwhile?
Positives:
* It does not have to be repaid. This is a huge improvement over the $7500 credit passed last year, which had to be repaid. Due to the requirement to repay, most of the people that were buying did not even bother to apply for the credit.
* The eligible property, and personal income limits are reasonable.
Negatives:
*This credit is for only $8000, not the $15,000 originally in the bill. $15,000 is a much nicer number, and would have encouraged a larger number of people to make the decision to purchase a home now. After all, that is the whole idea.
* This provision is limited to first time home buyers only. While great for first time home buyers, they are only a very small percentage of the home buyers pool. This is a huge negative... the powers that be really missed the boat on this one.
Will this new home buyer credit be successful in encouraging people to buy now, and help stimulate the real estate market?
It will help a little, and every little bit helps. However it would have been far more successful had the credit been larger, and especially without the first time buyers clause. Restricting the credit to only first time buyers will severely limit its overall effectiveness.
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