$8,000 tax credit for home buyers extended-President's message
$8,000 tax credit for home buyers
extended
President’s Message
Chris Sloan
Congress has extended a popular
tax credit of up to $8,000 for first-time home buyers until mid-2010. Home
buyers who were once under a tight Nov. 30 deadline now have until April 30 to
be under contract to purchase a primary residence under new legislation President
Obama signed last week.
The bill also expands the tax
credit to include existing homeowners who are purchasing a primary residence.
Under the new provisions, current owners must have lived in their home for at
least five consecutive years out of the past eight and are only eligible for a
credit worth up to $6,500, unlike the $8,000 limit awarded to first-time buyers
and those who haven’t owned within the past three years. Current
homeowners will only be able to qualify if the home purchase is made after Nov.
7.
Congress also expanded the
potential pool of qualifying home buyers by raising the income limits. Under
the previous version, home buyers would not qualify for the credit if their
incomes exceeded $75,000 for singles and $150,000 for couples. Under the new
legislation, single and married buyers can earn up to $125,000 and $225,000
respectively to receive the full credit. Those earning up to $20,000 above
those limits may qualify for a partial credit.
Although the tax credit has been
extended, interested buyers should not procrastinate. To qualify for either the
$8,000 or $6,500 credit, buyers must have a home purchase contract in place by
April 30. Buyers then have until July 1 to finalize the transaction.
While much of the tax credit has
been expanded, Congress has added a couple new requirements. A home’s
purchase price must not exceed $800,000, and buyers must provide documentation
of the purchase when filing their taxes.
This is the third time Congress has extended the home
buyer tax credit. The original 2008 tax credit provided first-time home buyers
with up to $7,500; however, the money had to be repaid and was essentially like
an interest-free loan. The second credit, which was enacted in February this
year, gave first-time buyers up to $8,000 that did not have to be repaid.
Already that tax credit has been
highly successful. The National Association of Realtors estimates approximately
350,000 U.S. home sales this year are directly attributable to the tax credit.
In fact, overall sales began to increase both locally
and nationally as the repayment-free credit began to take effect this spring.
U.S. home prices even saw signs of stabilization, with prices rising for four
consecutive months, according to the S&P Case-Shiller Index of 20 cities.
“We can’t underestimate just how powerful a
catalyst the first-time home buyer tax credit has been for the housing
sector,” said Lawrence Yun, chief economist for the National Association
of Realtors. “It’s given buyers the confidence they needed to get
off the fence and take advantage of extremely affordable housing conditions.
The buying conditions this year are the most favorable on records dating back
to 1970, but the tax credit is allowing buyers to set aside any reservations
about waiting for a better deal.”
Nevertheless, economists fear
rising unemployment and another wave of foreclosures will continue to put
downward pressure on prices. That why economists like Yun say the passage of
this tax credit extension and expansion was critically important.
“Foreclosures will continue to come on the market,
but rising sales from the expanded tax credit should stabilize home prices by
next spring and help to stem future foreclosures,” he said.
With the passage of the tax credit extension, Yun
estimates U.S. home sales will rise 20 percent in 2010 and inventories will
shrink back to normal levels, creating broad price stabilization across the
U.S.
“The housing market will get a nice boost going
into next year,” Yun said.
With all this momentum, however, Congress has made it
clear that it will not be extending the tax credit for a fourth time.
That’s why it’s imperative for home buyers to prepare now to take
advantage of the credit before it’s gone for good.
To learn more about the tax credit, home buying in your
area and how to get started on your home search, contact your local Realtor.