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
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.Email This Post To a Friend.