expansion

Lavenderlawblog post- First Time Homebuyer Tax Credit To Be Extended . . . . getting closer!!

As you may recall, there was a movement to extend the American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8000.00 for qualified first-time home buyers purchasing a principal residence. The expiration of this first time home buyers tax credit is on November 30, 2009. Many purchasers to be are pushing to close before this date to avail themselves to the credit.

Law makers are working to extend the first time home buyers tax credit to stop and reverse sinking home prices in an effort to prop up the sagging economy.

The plan would extend the homebuyers credit past the November 30th expiration date to home purchases under contract by April 30, 2009. Borrowers will be allowed another 60 days to close the sale.

The credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

There is a proposed expansion of the tax credit also. Other individuals, who are not first time home buyer could get up to $6,500, starting December 1st, if they’ve lived in their current home for at least five years. There are reports that the proposed legislation would require the purchase of a home to be a primary residence but no requirement to sell an existing home. This is an acknowledgment by lawmakers of one of the realities of the economy. Proposed home buyers may not be so quick to sell their current property in preparation of purchasing their new home. Not requiring the sale of an existing primary home while being permitted to utilize the tax credit and purchase a replacement primary home would potentially subsidize paying the carrying costs of the yet to be sold house while it is on the market.

One of my primary concerns about not requiring the sale of an existing primary home while utilizing a tax credit is unwise financial decisions that may lead to additional defaults and foreclosures. An individual in attempting to utilize a tax credit while owning an existing home may attempt to retain the original home as a rental investment property hoping that the net operating income (net amount of income generated by rent after deducting the homes expenses) is sufficient to pay the existing mortgage. If the bill is passed not requiring the sale of the original primary home (even if the deadline is an extended period of time) it could lead to a great number of wannabe investors going into default on existing loans when the rental of these home are delayed or do not materialize. The alternative argument to permit the retention and rental of an existing primary residence while purchasing another primary residence is that only borrowers with incomes sufficient to pay two mortgages simultaneously will be able to obtain a mortgage while still living or renting their existing primary residence because a lender may very well determine that the borrower-to-be has too much debt in relation to their income to obtain a mortgage in order to finance the purchase of another home without satisfying the prior mortgage.

There is significant support for the bill by both democrats and republicans and is endorsed by the Obama Administration.

See the link to an article on Bloomberg.com

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayS36Cg5hu5w

There are still questions on where the additional funds will come from and debate on whether to expand the credit to existing homeowners in an effort to boost home sales.

Due to a Republican demand that a vote be allowed on an amendment to end the Treasury Department’s Troubled Asset Relief Program at the end of this year, the proposal to extend the tax credit wont be voted on by the Senate until next week.

The U.S. Senate won’t vote until next week at the earliest on proposals to extend both an $8,000 tax credit for first-time homebuyers and unemployment benefits for the nation’s jobless. The administration endorses an extension.

Senate action was delayed by a Republican demand that a vote be allowed on an amendment to end the Treasury Department’s Troubled Asset Relief Program at the end of this year. See bloomberg.com article:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aoI9KTlHpwzI

 

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Lavenderlawblog post- First Time Homebuyer Tax Credit To Be Extended . . . . maybe

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8000.00 for qualified first-time home buyers purchasing a principal residence. The anticipation of the expiration of this tax credit on November 30, 2009, causing angst among potential home owners, may be for naught.

Lobbyists are pushing and a bill has been filed to extend the tax credit for another year and expand it to all homebuyers and not just first timers. The creation and attempted expansion of the tax credit is done as an effort to prop up a deflating housing market and economy. This has raised mixed responses from members of the financial community. Some see the extension and expansion as vital to the creation of jobs and a more positive momentum of the economy. Others view the tax credit as doing more harm than good. The concern is that the credit costs the government additional money for each first time home buyer who would have bought homes without the credit anyway. It is feared that the expansion of the credit from first time homebuyers to all homebuyers will dramatically increase the cost of each home to the government. Offsetting the cost of the credit by taking back unspent stimulus funds is being considered in contemplation of extending and expanding the tax credit.

Evidence of the likelihood of the extension of the credit is the recent passage of Service Members Home Ownership Tax Act (H.R.3590) by the House of Representatives on October 8, 2009. The bill is also expected to be quickly approved by the Senate and signed into law by the President.

The bill is an effort to prevent military personnel from missing the use of the $8,000.00 First Time Home Buyers Tax Credit due to their service overseas while it was being offered. The bill will extend the credit until November 30, 2010 for members of the service who are eligible and served overseas for at least 90 days during 2009. Intelligence personnel and members of the Foreign Service who have been deployed overseas this year will also be extended the credit. The bill prevents the IRS from recapturing the tax credit where members of the service are required to sell or rent out their houses due to deployment inside the country or out. The current law requires (under the penalty of returning the credit to the IRS) purchasers who do not use their houses as their principal residence for the first thirty-six (36) months of ownership. This provision of the law has caused military and members of the Foreign Service who move around to forego the ability to apply for the tax credit even when they have purchased homes.

All of the civilian “home-owners to be” are holding their breath to see who will win the battle to expand or extend the tax credit. While proponents and opponents of the tax credit extension recognize the necessity of jump starting the economy, the biggest obstacle to the credit is the cost to the consumers of this country. Not only now, but in the future, affecting the lives of our children and their children.

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