Obama signs expanded tax credit

Obama signs expanded tax credit
On 11/4/09, the Senate unanimously approved an extension of the current $8,000 first time homebuyer tax credit. The House is expected to approve the measure in the next few days and then on to the White House for signature sometime next week. The current proposal would give qualifying homebuyers until April 30th to sign a purchase contract and an additional 60 days to close.

In addition, homebuyers who previously owned a home for at least five consecutive years in the previous eight years would be eligible for a $6,500 tax credit for new home purchases. The income limits would expand to $125,000 for individuals and to $225,000 for married couples. Updates will be forthcoming as the bill moves forward.


$8,000 home credit still in play
Negotiations about whether and how to extend and expand the tax credit for homebuyers are moving quickly. Here are the latest developments.

By Jeanne Sahadi


Confused about whether lawmakers will extend the $8,000 first-time homebuyer credit and what it would look like?

That's understandable, since the situation is still very fluid.

Here's where things stand.

Support for the credit: There is still bipartisan support in Congress for extending the credit past Nov. 30 and making it available to more homebuyers.

The Obama administration wants the credit extended for a "limited period," Treasury Secretary Tim Geithner and Housing Secretary Shaun Donovan said Thursday. They did not elaborate.

What's on the table now: There appears to be a compromise deal that falls between the most and least generous proposals that have been put forth so far.

"There is bipartisan compromise to extend the credit through spring and expand it to existing homeowners who are stepping up to a different home," financial policy analyst Jaret Seiberg wrote in a research note for Concept Capital's Research Group.

The latest idea under discussion is a credit worth up to $8,000 for first-time homebuyers and up to $6,500 for homeowners looking to trade up to a bigger primary residence and who have already lived in their current home for five years. (CNN: Senate compromise may be in the works.)

To qualify for the full credit, however, homebuyers must have adjusted gross income of less than $125,000 ($225,000 for married couples filing jointly).

In addition, the credit would only apply to homes sold for $800,000 or less. Contracts to buy a home must be signed by April 30, 2010, and the deals must close by June 30 in order for a buyer to qualify for the credit.

Rationale for extending the credit: Supporters of the credit say it has helped to boost existing home sales in recent months. Extending the credit would help further support sales, stabilize housing prices and generate jobs in the face of an expected rise in foreclosures next year, which is expected to put downward pressure on prices.

If the credit is allowed to expire, they say, the housing market and the broader economy will grow moribund again.

"The most fundamental argument for the credit is that nothing works in the economy if housing is falling -- it hurts household wealth and credit becomes tight," said Mark Zandi, chief economist at Moody's Economy.com. "[The credit] is a good insurance policy. It's vital to stem the housing price declines."

What critics say: Though extending the credit has bipartisan support, it is not without its critics.

Critics, while acknowledging that the credit has helped to generate additional home sales, say it has been poorly targeted and therefore not cost-effective.

They point to estimates that only 10% to 20% of the nearly 2 million homebuyers who will have gotten the credit by Nov. 30 bought solely because of the tax break.

In other words, a large majority of homebuyers who benefited from the credit would have bought their homes without it.

By one economist's estimate, the government may have spent $43,000 for each sale that occurred strictly because of the credit.

In a position paper published this week, the liberal Center on Budget and Policy Priorities said making the credit available to existing homeowners would not help stabilize housing prices or reduce inventory.

"When [they] purchase a new home, they simultaneously put their current home up for sale. As a result, there is no net effect on supply or demand in the housing market."

Timing on a vote: An amendment to extend and expand the credit could be attached to a bill that would extend unemployment benefits and which could pass the Senate by next week.

However, there's a chance the housing credit will be dealt with separately.

The credit could be attached to another piece of legislation or put in a standalone bill with other proposals to extend tax breaks.



Source: CNN Money


Obama signs expanded tax credit
By Chris Kissell


Homebuyers are receiving an early holiday gift from Congress and the White House.

This week, the Senate and House passed an unemployment relief bill that also extends the federal homebuyer tax credit into 2010 and expands the pool of eligibility beyond first-time buyers. President Barack Obama signed the measure into law Friday.

"Any program expansion can be considered a good thing for those seeking a primary residence," says Cameron Findlay, chief economist at LendingTree in Charlotte, N.C.

Extending and expanding the credit will likely shape the type of home purchases that occur over the next few months, according to Findlay.

"Sales activity itself may not see a large increase," he says. "But we expect the mix of the sales to shift towards (the) primary residence owner."

Bill details
The new legislation extends the existing $8,000 first-time homebuyer credit beyond its scheduled Nov. 30 expiration date and into the spring. A $6,500 credit also will be offered to existing homeowners who sell their current property and purchase a primary residence that costs $800,000 or less. To be eligible for the tax break, homebuyers would have to be under contract by April 30, 2010, with closings wrapped up no later than 60 days after that.

Income limits for the credit would increase to $125,000 for individuals and $225,000 for couples. Homebuyers who qualify must stay in their new homes for at least three years or they will have to repay the credit.

The legislation excludes investor-owned properties from eligibility, a move that appears to keep the program focused on "promoting long-term community price stabilization," Findlay says.

Act soon
Buyers are the most obvious beneficiaries of the expanded credit. But sellers also could get a boost, especially if they live in states stung by dramatic property value declines. David Kuiper, a mortgage planner at First Place Bank in Holland, Mich., says homeowners who fear selling at a loss might be persuaded to do so anyway if they know they'll get money back in the form of a tax credit after buying a new home.

"It would help with the equity loss in the home they sell," he says.

Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla., says the credit could help reimburse other costs associated with selling a property, including "updating, minor renovations (or) recapture of closing costs."
However, the credit's impact also could cut in negative ways. As the spring expiration date draws nearer, sellers might use the credit as leverage against buyers who are "under the gun to get a deal done," Sahnger says.

"The closer we are to the deadline, the more sellers may be apt to hold firm on pricing," Sahnger says, noting that such a pattern emerged in recent weeks as the original Nov. 30 deadline loomed.



Source: Bankrate