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.
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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


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:



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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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