Lavenderlawblog Post- First Time Home Buyers Tax Credit Approved by Congress

I know it seems as if I am milking the first time home buyers tax credit (this is my third post about it).

Although not a cure-all, I think its extension and expansion of the credit will definitely be a catalyst for the economy. A large number of purchasers of real estate that I represent are encouraged and/or are counting on receiving this tax credit. The tax credit paired with current quoted mortgage interest rates in the high 4% (maybe with payment of points) to mid 5% range will act as fertilizer to help grow the housing market. It is hoped that the tax credit will continue to drive up the sale of homes which would consequently add to transfer tax revenues sorely needed by governing municipalities. The decrease in the amount of homes on the market would drive the prices of existing product higher which in turn would lead to higher real estate taxes needed by the local governments. The $8,000.00 home buyer tax credit will have more value in areas where the value of homes are less and presumably assisting families with smaller incomes.

What is the cost? I have read reports that expanding the home buyers’ credit will cost about 11 billion dollars. The total cost of extending the first-time buyer credit and adding the existing owners’ credit is reportedly at 16.7 billion dollars. Opponents are concerned about its repayment. Are we sacrificing the futures of our children and grand children? Some real estate experts think it is better to let the market correct itself and let the chips fall where they may. There is also a concern that the banks that own all of these foreclosed homes may pull them from the market resulting in a decrease in the supply only to sell them in the future at a much higher price (remember the rules of supply and demand?). It is unclear on what level this scenario can be addressed, if at all.

Like it or not, the first-time home buyer tax credit extension and expansion is to be sent before President Barack Obama after the U.S. House of Representatives voted yesterday morning (403 to 12) to pass the measure as part of unemployment benefits extension legislation H.R. 3548. The U.S. Senate unanimously approved it Wednesday.

The Obama administration has already publicly announced that the President is in favor of the bill and he is expected to sign the measure as early as today.

The extension and expansion of the tax credit gives a tax incentive to buy a home until at least April 30, 2010 for both new and not-so new buyers. Military personnel have a longer period of time.

The new tax credit extends the existing credit for first-time homebuyers, worth up to $8,000.

Existing homeowners, who have been in their current residence for a consecutive five-year period are offered a reduced new credit of up to $6,500.

The new rule also raises the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers. Currently, the income limits are $75,000 (single taxpayers) and $150,000 (joint taxpayers).

The maximum allowed home purchase price is $800,000.

The buyer needs to enter into a contract of sale by April 30 and close title by June 30, 2010.

Military personnel, deployed overseas for a minimum of 90 days in 2008 or 2009, would have until April 30, 2011 to claim the tax credit.

People are creative. BE CAREFUL!

The new legislation includes provisions to stifle fraud after the Internal Revenue Service identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.

Cheating the IRS is a federal felony that comes with a fine of up to $250,000.00 and three (3) years in a federal prison, or both.

To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.

You will need to submit IRS Form 5405 with your tax return.

IRS Form 5405 for 2008: http://www.irs.gov/pub/irs-pdf/f5405.pdf

Proposed tax form for 2009: http://www.irs.gov/pub/irs-dft/f5405–dft.pdf

The IRS site for the home buyers tax credit is: http://www.irs.gov/newsroom/article/0,,id=204671,00.html

Any questions or comments are greatly appreciated.
Visit: www.lavenderlawblog.com for more information

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