The federal government is working on a plan to stimulate the currently sagging housing market. In the Senate, a "voice vote" has been made to propose a $15,000 tax break for homebuyers.
More details are emerging about the amendment to the pending economic stimulus bill, which is the brainchild of Georgia Senator Johnny Isakson, a former real estate broker.
Unlike the current $7,500 housing tax credit, the new credit would be available to all home buyers and would not have to be paid back. The $7,500 plan that is now in place is offered only to first-time home buyers and requires a repayment plan over a 15 year period. The new amendment would replace the current plan on the date of its enactment.
The mechanics of the plan are that it would provide a direct tax credit to any homebuyer who purchases any home. The amount of the credit would be $15,000 or 10 percent of the purchase price, whichever is less. Purchases would have to be made within one year of the legislation's enactment.
The credit is nonrefundable and can be claimed over two years, so buyers whose tax liability is less than $15,000 would have a second year to capture the credit. For example, a buyer who owes $10,000 in taxes would be able to take a $10,000 credit in the first year after their purchase and a $5,000 credit for the year after that.
The new tax credit amendment was modeled after legislation that was put into effect in the 1970's when the country was facing a similar housing crisis to the one we have today. Easy credit had flooded the market with new construction and with rising interest rates and a slowing economy; we were left with a three-year supply of vacant homes. In response, Congress passed a $2,000 tax credit to anyone purchasing a new home for their principal residence. The result was a stabilization of home values, a drop in housing inventory, and, eventually, a recovery in the housing market.
Aside from injecting some cash into people's pockets, how may this proposal change the way banks are dealing with homebuyers? Perhaps some of the current restrictions will be loosened with more money flowing around. Specifically, will a lower down payment be more acceptable to a lender if they know a $15,000 tax credit will be coming back to the borrower?
Time will tell. The amendment is far from being signed and delivered. It still needs a vote from both houses then the President's signature. And, this part of the stimulus package could yet be revised.
Copyright 2009 - Claudette Millette, President, TheBuyersCounsel - 800-392-1446, E-mail
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