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Nevada County Real Estate Market Snapshot - Federal Homebuyers Tax Credit
Created: 11/16/2009
November 16, 2009 - The Worker, Homeownership and Business Assistance Act of 2009 (HR3548) was signed into law in November by President Obama.
The bill deals with housing and unemployment aspects of the current economic crisis, including the Homebuyer Tax Credit. In addition to extending the first-time homebuyer tax credit, a whole new category of homebuyer is now eligible for a similar tax credit.
The $8,000 first-time homebuyer tax credit was due to expire on Nov. 30. There is a pretty good argument to be made that this tax credit has played a significant part in the apparent halt to the years-long decline in median home prices nationwide and to the increasing sales volume in many markets, including our own. In our last column, we showed that there has been a halt to price declines and substantially increased sales volume in the Nevada County market.
A consensus developed among real estate industry and government officials that expiration of this economic stimulus at a crucial time heading into the winter season might be extremely hazardous to a housing recovery in its infancy.
And so the legislation was redrafted to extend it to June 30 2010, and added a new category of tax credit for repeat home buyers.
The categories are as follows:
First-time homebuyer: A person who has not owned a home for three years or more. This credit is 10 percent of the home price, up to a maximum of $8,000.
Repeat homebuyer: A person who has lived in their current home for five consecutive years of the previous eight years. This credit is 10 percent of the home price, up to a maximum of $6,500. This program is intended for both move-up and downsizing buyers and there is no requirement that the current home be sold.
Rules that apply to both categories of buyer
- The buyer must remain in the newly purchased home as the primary residence for at least three years in order to avoid having to repay the entire credit. There are exceptions for death and certain military service.
- The buyer must be in contract to purchase by April 30, 2010, and close escrow by June 30.
- New and existing homes qualify.
- For purchases completed after Nov. 6, 2009, the maximum purchase price is $800,000. Previously there was no limit.
- The income limits are higher for purchases completed after Nov. 6, 2009.
- Under the original law, the credit was phased out for single taxpayers with Modified Adjusted Gross Income (MAGI) between $75,000 and $95,000 and for married couples with MAGI between $150,000 and $170,000.
- After November 6, the tax credit phases out at incomes between $125,000 and $145,000 for single and $225,000 and $245,000 for joint filers.
Finally, our government has come up with a way to put a few of the nearly $1 trillion of TARP funds back in our pockets at last. It’s about time!
It is safe to say that it was a wise thing to limit the type of purchase required to qualify for this tax credit to home purchases. Can you imagine the financial hangover that might result from the First Time Beer Buyer’s Tax Credit? Or worse yet, the Repeat Beer Buyer’s Tax Credit?
