Home Buyer Tax Credit Information

Those reading here over the past week know we’ve been obsessing over the about-to-become-law tax credit for first time home buyers. Several iterations were bantered about Congress before the dust finally settled.

Yesterday both the House and Senate passed the stimulus package (officially now called the “American Recovery and Reinvestment Act of 2009”) that included revisions to an existing first time home buyers tax credit. Courtesy of the National Association of Realtors (NAR), here is a nice breakdown comparing the two. The stimulus bill is expected to be signed into law by the President early next week.

FIRST-TIME HOMEBUYER TAX CREDIT
As Modified in the American Recovery and Reinvestment Act
Major Modifications Bolded
February 2009

FEATURE CREDIT AS CREATED JULY 2008 APPLIES TO ALL QUALIFIED PURCHASES ON OR AFTER APRIL 9, 2008 REVISED CREDIT – EFFECTIVE FOR PURCHASES ON OR AFTER JANUARY 1, 2009 AND BEFORE DECEMBER 1, 2009
Amount of Credit Lesser of 10 percent of cost of home or $7500 Maximum credit amount increased to $8000
Eligible Property Any single family residence (including condos, co-ops, townhouses) that will be used as a principal residence.

No change
All principal residences eligible.
Refundable Yes. Reduces (or can eliminate) income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser.

No change
Purchasers will continue to receive refund for unused amount when tax return is filed.
Income Limit Yes. Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). Phases out above those caps ($95,000 and $170,000).

No change
Same income limits continue to apply.
First-time Homebuyer Only Yes. Purchaser (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to purchase.

No change
Still available for first-time purchasers only. Three-year rule continues to apply.
Revenue Bond Financing No credit allowed if home financed with state/local bond funding. Purchasers who utilize revenue bond financing can use credit.
Repayment Yes. Portion (6.67% of credit or $500) to be repaid each year for 15 years, starting with 2010 tax filing. No repayment for purchases on or after January 1, 2009 and before December 1, 2009
Recapture If home sold before 15-year repayment period ends, then outstanding balance of repayment amount recaptured on sale. If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009.
Termination

July 1, 2009
(But note program changes for 2009)
December 1, 2009
Effective Date Purchases on or after April 9, 2008 and before January 1, 2009. Repayment to begin for 2010 tax year. All revisions are effective as of January 1, 2009

You can download a PDF version of this home buyer tax credit comparison here.

There were a few other measures in the bill that could impact the housing market, most notably the reinstatement of higher FHA, Freddie Mac and Fannie Mae loans for 2009 (which look like they will be $356,250 for FHA and $417,000 for Fannie and Freddie in Maricopa and Pinal counties). There is also a tax credit for homeowners for purchases of qualified new furnaces, windows and insulation. More on this as it becomes available.

Will this revised tax credit stimulate a housing market recovery? Maybe. Maybe not. Personally, I think the Senate’s version which was a $15,000 tax credit (that could be evenly split over two years), wasn’t subject to income restrictions and most importantly was for ALL, not just first-time, buyers would have been more successful. But that’s water under the bridge. It’s gone. What we have is what we have. This is a nice incentive for first-time buyers, and the fact that it is both refundable and does not have to be repaid is a significant improvement over the existing “credit” (which was really a zero interest loan).

I think it will help, but it’s certainly not a cure for the beleaguered real estate market.

Of Note: I am not a tax professional, nor do I play one on TV or the Internet. You should seek advice from a CPA or professional tax preparer. If the IRS comes after you with guns blazing for anything you read in this post or anything you think you read in this post, it’s not my fault. Seek professional help!