Stimulus Bill Expands The First-Time Home Buyer Tax Credit

February 19, 2009

Finance

President Obama has signed into law the economic stimulus bill. That meant its name has now been changed to American Recovery and Reinvestment Act. The $787 billion law has been greatly cheered and resoundingly booed by all sides of the political spectrum. It’s goal is to get the US economy going, and since housing is such an enormous part of the economy, let’s take a look at what the bill will do for the depressed housing industry.

First-Time Home Buyer Tax Credit

$8,000 for First-Time Home Buyers

$8,000 for First-Time Home Buyers

The main incentive in the law is to expand the tax credit for first-time home buyers. The tax credit was already in place, but the new law expands the credit. Here’s what it will do:

  • How Much? Just as the name says, it will give every first-time buyer a credit toward their income tax. This credit is now a maximum of $8,000. (Before the American Recover and Reinvestment Act the maximum was $7,500.)
  • Dates The home must be purchased between Jan. 1, 2009 and Dec. 31, 2009.
  • Repayment The big change is that this credit does not have to be repaid. It is a gift, not a loan. Before the new law, approximately $500 of the credit had to be repaid each year over 15 years.
  • House Restrictions It’s available on the purchase of any single family home (condos, townhouses, and co-ops are included) that will be the primary residence of the buyer.
  • Refund If the buyer’s total income tax is not $8,000, he or she will get a refund so that they still receive the entire $8,000.
  • Income Limit There is an income limit. The buyer will receive the full credit if their adjusted gross income is less than $75,000 ($150,ooo for a joint return). Above that, the credit fades out.
  • First-Time Home Buyer Definition A first-time home buyer is defined as anyone who has not owned a home for the previous three years.
  • Recapture If the buyer sells the home within the next three years, the entire amount of the credit has to be repaid to the government.

Can I Get a First-Time Home Buyer Tax Credit for Last Year?

You may still be in luck. If you bought your principal residence for the first time between Apr. 1, 2008 and Jan. 1, 2009, you are still eligible for the old $7,500 tax credit. Make sure to talk to your tax preparer or look into it yourself before filing your taxes, which are due on Arp. 15, 2009.

What’s Been the Reaction?

The National Association of Realtors® (NAR) is very optimistic. Their representatives have said that they believe the new law could lead to as many as 300,000 additional new homes being bought this year. They are also hoping that this could aid in stabilizing home prices.

According to the Wall Street Journal, Wall Street is not so thrilled. The WSJ quotes an analyst who points out that home prices have dropped an average of $58,000 in 41 metro areas. The analyst thinks another $8,000 will not have an impact. Also, this Pennsylvania developer wishes the originally proposed $15,000 credit would have made it through congress?he doesn’t believe the $8,000 will do much good.

However, buyers and real estate agents from all over the country are excited, such as in Alabama, Milwaukee, and Virginia. They all feel that the fact that the credit no longer has to be repaid will make a huge difference.

I think we all hope the buyers and the real estate agents are right…and Wall Street has it wrong.

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About Rod Holmes

Rod has been a broker working in Chicago since 2004. He has worked with developers, buyers, sellers, and as well as managing offices. He is currently a partner in Chicago Style SEO working primarily with real estate firms to improve their Internet marketing. Rod lived for nearly ten years in Japan where he owned a corporate training and executive coaching firm with clients including Hitachi and 3M Japan. He lives in Lakeview with his wife and two children. He enjoys coaching and watching his kids participate in sports, cycling, camping, and traveling in general. You can find Rod online on Twitter at @roddesu, Facebook and LinkedIn.

View all posts by Rod Holmes

11 Responses to “Stimulus Bill Expands The First-Time Home Buyer Tax Credit”

  1. ed Says:

    could you please give me more informton on 1st time home buyers and the assistance the federal government provides?

    thank you

  2. Rod Holmes Says:

    Do you have a specific question you’d like to ask. The post covers most of the basics, so it sounds like you might have some specific questions. I’ll do what I can to help.

  3. jolie Says:

    My offer just got approved. I’m buying a condo in Chicago! My question is, last year when I was looking to buy, I was told there was a 2% gift for 1st time home buyers. The broker I just saw claims that that program ran out of money, is that true?? If so, is there any other ‘gift’ program available. The information is so hard to find online!
    Thank you so much to anyone who can answer!!

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