Home Buyer Tax Credit Extended, Expanded

Home Buyer Tax Credit Extended, Expanded


The extension of the first-time home buyer tax credit will help continue to clear out inventory, but expanding the credit to include more buyers may not be as helpful in high-cost housing areas.



President Barack Obama recently signed legislation that extends the deadline on the first-time home buyer tax credit and adds a smaller tax credit for move-up and other home buyers.



The extension and expansion gives home buyers a tax incentive to buy a home until at least April 30, 2010 -- April 30, 2011 for qualifying military personnel. The previous deadline was just weeks away, November 30, 2009.



"The extension of the first-time home buyer tax credit will be crucial to clearing out unsold inventory and especially the lagging bank owned inventory that has not even hit the market yet," said Kim DiBenedetto, president of the Monterey County Association of Realtors.



That's true of many housing markets.



"California Association of Realtor studies tell us that for more than 75 percent of home buyers this year, the tax credit was very important and more than 40 percent of the home buyers would not have been able to buy without the credit," added DiBenedetto.



The existing tax credit for first-time homebuyers remains at a maximum $8,000.



A new tax credit of up to $6,500 is available to qualifying existing homeowners who buy a new primary residence (or have one built) by April 30, 2010, if they owned their existing home for five consecutive years over the last eight years. Second homes don't qualify for the credit.



Home buyers have to repay the credit if they live in their primary residence less than 36 months and are not members of the military.



The new rule also raises the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers, from the current $75,000 and $150,000.



The maximum allowed home purchase price is $800,000, which won't be as useful to move-up buyers in high-cost areas.



"Part of the bill also expanded the credit to move up buyers, however, it may not be as helpful to the homeowners in our areas because there is a cap on the purchase price of $800,000, but we are grateful to anything that will help even a few," said DiBenedetto, a real estate agent in Carmel, California.



That's also true of high-cost markets nationwide.



Both first-time home buyers and others must contract to buy a home by April 30, but close escrow by June 30, 2010.



Buyers can claim the credit on their 2009 taxes, even if the purchase is made in 2010 by filing an amended return.



DiBenedetto said "This will also assist in selling the short sale inventory that those buyers were afraid to consider because of the time frame involved in closing them when they were on this deadline to close by the end of the month (November)."



Buyers who don't owe taxes can have the credit refunded to them as a rebate.



More information is available from the Internal Revenue Service (http://www.irs.gov), including a question and answer page.



It's all good news for the housing market.



The National Association of Realtors says as many as 400,000 resale transactions (1.2 million for both new and resale homes) were completed specifically because of the first-time home buyer tax credit, since it began, and that put a dent in the housing inventory.



Home sales also add property and sales tax revenues to the coffers of local governments as reduced inventory helps boost prices and home values.



The first-time home buyer tax credit's availability has coincided with mortgage rates often hanging below 5 percent, according to Jeff Howard, CEO of Erate.com.



As the November 30 tax credit deadline neared, reports from the Commerce Department, revealed new home sales slipped 3.6 percent in September and were down 7.8 percent from September 2008.



Tax credit history



As part of the Housing and Economic Recovery Act of 2008, Congress first created a $7,500 first-time home buyer tax credit for those who purchased a home between April 8, 2008, and July 1, 2009.



Later, under the American Recovery and Reinvestment Act of 2009, Congress extended the credit and raised it to an $8,000 tax credit for those who purchased homes by the November 30, 2009 expiration date.



By October 9, 2009, more than 1.2 million tax returns had claimed about $8.5 billion in the refundable tax credit, for both new and resale homes - according to the Treasury Inspector General for Tax Administration (TIGTA). A TIGTA audit also revealed last month that nearly 90,000 taxpayers -- including nearly 600 children -- may have fraudulently enjoyed the credit, hoodwinking the government out of more than $600 million.



The new legislation includes provisions to stifle fraud after the Internal Revenue Service identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.



Cheating the IRS is a federal felony that comes with a fine of up to $250,000 and three years in a federal pen, or both. To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.





Written by Broderick Perkins

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