Thursday, January 29, 2009

Free money for home buyers

Current homeowners are not eligible:
If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.

Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.

Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid. ...

To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.

Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That's it. No other forms or papers have to be filed.

Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don't sell for at least 36 months, they keep the money.

And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer's tax liability. So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund. ...

But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card. Williams points out that buyers should beware that they won't actually receive any refund for a home purchased this year until after they file their 2009 income taxes in April 2010.

And he argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn't buy without it. So, it merely provides a windfall for many people who would have purchased anyway.

And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back — the suspicion that prices are going to keep falling.

"As long as people are uncertain about what markets are going to do, this won't help much," said Williams. "It's not enough to change that."


  1. "And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back — the suspicion that prices are going to keep falling."

    Interesting ... what was holding buyers back was that prices were rising too high, now the excuse is that prices might go even lower. Excuses, excuses ... commitment-phobia.

  2. Lance, ask any economist--well, any economist that doesn't work for NAR--price volatility in EITHER direction is bad for business.

  3. $7500 is peanuts compared to the amount you will lose your a** on if you were to buy between now and Aug. They must be joking....Id rather them just bail the banks out with more cash to be honest.

    I dont care either way, I just signed another year lease. See ya next year after all the AltAs reset...even with the $7500 credit

  4. Is anything in life truly free? The tax credit is a loan in disguise. WIth that said, it is still a positive step to encourage the potential homebuyer to step up to the plate. Good topic..keep it up...I have just added you to the favorite column. Potomac Secret Agent

  5. FYI, Lance has had to rent out his house and moved himself into his English/basement apartment. Oh the shame. would someone please buy to ease his pain....

  6. whatever....when stimulus III hits, they will offer $10,000. Suckers bet.

  7. What about those that actually sold their homes at a loss (because they had to move for work) but now don't qualify because they haven't rented for 3 years? What a joke. I wish the gov't would quit messing with everything and let the market take its course. In the end, I agree with the other commenters, I am waiting for prices to fall - hopefully to 2000 or 2001 prices. In some places we are at 2003 or 2004 levels now. Just keep turning the clock back a few more years and I'll be a buyer.

  8. Wait a tick - I heard they were going to give a 25K credit....where did that one go???

  9. I don't think buying an overpriced home to get a $7500 tax credit is a good enough reason to do so. You can make that up in negotiations frankly.

    And has nothing to do with commitment. Frankly, you'd have to be utterly retarded to buy a home in a climate where home prices are clearly coming down.

    I'd have paid well over $250K or more if I had bought a few years back like you did. I wonder Lance, do you buy stuff on sale or pay full price or even markups?

  10. "Noz said...

    Frankly, you'd have to be utterly retarded to buy a home in a climate where home prices are clearly coming down."

    Depends, if you did that in LA in 1993, you were a fool. If you did that in LA in 1996 you were the wisest man on the face of the earth (despite the fact others were certainly calling you a fool).

    If you run the numbers, do the research and are convinced this is 1996, I say, good for you. It may turn out to be otherwise, but gotta admire those out there now thinking it is 1996.

    Me? Im not one of them. Id rather take the sloppy seconds (picked over inventory) after the bottom has been reached. I just really hate losing money...

  11. I am going to grab this thing.