UPDATE (NOV. 5, 2009): Read this for information about the newly extended and expanded $8,000 home buyer tax credit which is is open to more than first time homebuyers and extended to May 1, 2010.

 

UPDATE (Feb 13, 7:30pm): The Associated Press reported the following: First-time buyers are defined as those who haven't owned a house for at least three years.  The tax credit of 10 percent of the value of a home, up to $8,000, would cost the government an estimated $6.6 billion. It would start phasing out for couples with incomes above $150,000 and single taxpayers with incomes above $75,000. Buyers would have to repay the credit if they sold their homes within three years.

 

UPDATE (Feb 12, 11:15am):  Latest info about the compromise stimulus bill has the credit becoming an $8,000 tax credit (non-repayable) so it is a full credit, but it looks like it will apply to homes purchased by first time buyers between Jan 1, 2009 and August 31, 2009. 

Presumably, the repayable version $7500 "credit" would still be an option for those who already purchased last year after April 9th.  This are still many details unclear and this is subject to change so make sure to check back in to my new posts about it here.  I will update as I get more information.

 

Although none of this has been set in stone, and is still subject to change as the stimulus package gets finalized, I have been receiving many questions about the proposed $15,000 tax credit.

UPDATE (Feb 11, 7:15am):  See an outline of the entire stimulus bill the major differences between the Senate and House versions here (pdf).

UPDATE (Feb 10, 5:15pm):  The Senate voted and passed their bill today by a vote of 61-37 (3 Republicans joined the Democrats to get to 61).  The Conference Committee will now begin to reconcile the Senate and House bills and it is expected a final bill will be in front of Obama by Friday. 

Where we are now (Feb 10, 8:05am): The Senate is set to vote on their version of the economic stimulus bill today.  After the bill passing the Senate, which is expected today, the House and Senate will set up a Conference Committee to reconcile the two versions of the bill to finalize for President Obama to sign.  This could come together quickly since, if you watched his press conference last night, you saw Obama putting the full court press on Congress to get him a bill asap.

As it stands now, the Senate homebuyer credit goes as follows:  In their bill, there is a $15,000 tax credit for homebuyers (the following is from this article at CNNMoney.com, the emphasis is my own)

The Senate's version of the plan sweetened the $7,500 homebuyer tax credit provision proposed by the House, doubling it to $15,000 or 10% of the home's purchase price (whichever is lower). What's more, the credit applies to all buyers - not just those purchasing their first homes. [I previously wrote about the $7500 tax credit:  $7500 First time homebuyer tax credit repayment likely to be eliminated; $7500 First time homebuyer tax credit; $7500 home buyer tax credit update - is it worth it]

The Senate credit also has no income limits. The House version, in comparison, allows only those with incomes up to $75,000 for singles and $150,000 for couples to qualify for the full amount. (In that bill, those earning up to $95,000 and $170,000, respectively, can qualify for a partial credit.)

Also, unlike the tax credit passed last summer as part of the Housing Recovery Act, this one does not have to be repaid. The old credit acted more like a no-interest loan than a true credit and, as a result, had little impact on home sales.

The Senate tax credit, unlike the House proposal, is also non-refundable. That means, if your tax obligation is less than the credit, you only receive an amount equal to your tax bill, no more. The average taxpayer pays considerably less than $15,000 a year in federal income taxes and so would not qualify for the entire credit. For example, if your total tax bill is $8,000, your debt would be zeroed out, but you wouldn't receive the remaining $7,000 as a refund.

But homebuyers can take the credit spread out over two tax years. So in the above example, the taxpayer could claim the remaining $7,000 on next year's taxes.

Another difference is that the Senate credit is good for one year following its enactment and is not retroactive. Homebuyers who make purchases before the credit takes effect cannot claim it; under the House bill, they can because the credit is retroactive to the start of 2009 and expires at the end of June. In both bills, buyers must live in the home for two years or forfeit the credit.

If approved, applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. It can be claimed on 2008 returns; taxpayers who have already completed their returns can file amended returns for 2008 that claim the credit.

We'll see what the final signed bill looks like, but either way it looks like substantial incentive and welcome news for those thinking about buying (or selling, for that matter) in the near future.  Whether or not I consider it "good policy" is a story for another day but with pretty much all the cards being thrown on the table in this stimulus package anyway - why not this too.  Since housing is a major driver of the economy it only makes sense that a large component of the package is geared towards creating more demand in the market at least to try to combat the lack of confidence consumers feel in making a buying decision (of anything) at this point.  Of course, it will do nothing to help those out of a job, but incentivizing (is that even a word?) more people to buy homes, clearing the inventory of unsold homes, and slowing or stopping the national home price declines, could help steer the overall economy in the right direction.

So I guess the message from Congress is this: Do your part to help America, buy a home!

 

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