A New Tax Credit for First-Time Buyers
Confusion Clears as Congress Finalizes Stimulus Act
Feb 16, 2009
But there's still some help for homeowners in the American Recovery and Reinvestment Act of 2009, the final version of the hotly debated economic stimulus bill that both the Senate and House passed last week.
The new credit, though, is far less inclusive and much less generous than the $15,000 version that everyone was hoping for. The new credit checks in at $8,000, and is only available to first-time home buyers.
Help, Just Not as Much of it
The $15,000 tax credit would have applied to all home buyers who purchased a primary residence within one year of the recovery act's passage. And in a true bonus for buyers, the $15,000 credit required no payback.
The new $8,000 credit has its own positives and negatives. On the negative side, it is only available to first-time buyers purchasing a primary residence from Jan. 1 to Dec. 1 of 2009. And if these first-time buyers happen to sell their homes within three years of purchase, they are required to pay back the entire $8,000 tax credit.
That's the bad news. On the good side, the $8,000 credit, like the proposed $15,000 version, does not have to be paid back. First-time buyers claim the tax credit on their tax returns. This reduces their tax liability. If the credit is higher than this liability, the unused credit is sent as a check to the first-time buyer.
Will it Help Invigorate the Housing Industry?
The big question now is whether this new version of the tax credit will provide a much-needed boost to the housing industry.
The real estate market certainly could use some help. Home sales across the country dropped 5.9 percent in the fourth quarter of 2008 from the same period one year earlier, according to the National Association of REALTORS. The association also reported that the median sales price of existing homes fell from a high point of $230,200 in July of 2006 to $175,400 in December of last year. That's an awfully steep drop.
At the same time, RealtyTrac, an online provider of real estate data, reported that foreclosure filings in the United States hit 2.3 million in 2008. That represents a jump of 81 percent from one year earlier. It's also the highest number of foreclosure filings that the country has seen in any year.
Support from the REALTOR Association
The National Association of REALTORS has given the recovery act its blessing. In a press release, the association writes that the home buyer tax provisions included in the approved bill could stimulate up to 300,000 additional home sales.
The association also said that the bill could help stabilize home values and possibly prevent some homeowners from facing foreclosure.
Pres. Barack Obama will probably sign the bill sometime this week, ending an emotional struggle to get the measure through both houses of Congress. There's no way to know yet if the bill will have the kind of impact that the National Association of REALTORS is predicting.
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