Homebuyer’s Credit Expires This Week

Tax Day may have come and gone but many taxpayers still have one more significant tax-related date in April: April 30. That’s the last day for taxpayers hoping to qualify for the homebuyer’s credit to finalize their contracts. Taxpayers who sign a contract by that date have until June 30, 2010, to settle on the purchase and be eligible for the credit.

Under the Worker, Homeownership, and Business Assistance Act of 2009, the deadline for qualifying home purchases was extended and expanded. You may now be eligible for one of two versions of the credit:

1, A $8,000 credit, or 10% of the purchase price, whichever is less, is available if you (or your spouse, if married) have not owned a home for the past three years;
2, A credit of up to $6,500 is available if you (or your spouse, if married) have owned a home for five consecutive years of the last eight.

In both cases, taxpayers must be at least 18 years old and must not be claimed as a dependent on any other taxpayer’s return in order to claim the credit.

The full credit is available to taxpayers with modified adjusted gross incomes (MAGI) of up to $125,000, or $225,000 for married taxpayers filing jointly. Those individual taxpayers with MAGI between $125,000 and $145,000, and married taxpayers with joint income of between $225,000 and $245,000, are eligible for a reduced credit. Those taxpayers with incomes above those thresholds are phased out.

If you buy a home in 2009, you can opt to claim the credit on your 2009 federal income tax return (by filing an amended return) or choose to take it on your 2010 federal income tax return. The credit is also refundable which means that you would be entitled to cash back from the IRS – even if you don’t owe any taxes.

The homebuyer credit was intended to kick start the housing economy. The media is having a field day with a recent boost in home sales, claiming that it’s a “rush” to claim the credit. I think it’s a bit overblown. The surge could also be characterized a reaction to a record low month for home sales in February which was, according to my sources, largely attributable to miserable winter weather together with a bad economy. In other words, the bar was pretty low to begin with so it’s not too hard to top it. To tout the percentage gain as “the biggest on a month-over-month basis” since 1963 is a bit misleading – it’s all kind of relative.

Don’t believe me? Check out this graph from Calculated Risk:

Home_graph.jpg

While it might be hard to see the numbers in the graph, here’s the piece to focus on: check out the “spike” for March 2010. Does it seem out of ordinary compared to any other year?

I’m not saying that the credit didn’t boost some of the numbers. I just think it’s not as dramatic as the headlines. We saw the same kind of hype last year about the credit (just before it was renewed). Yet, according to a report released by Goldman Sachs economist Alec Phillips (no relation), all but about 200,000 of the 1.4 million first-time buyers who claimed the first-time homebuyer’s credit in 2009 would have purchased a home even without the incentive. Put another way, that means $1 billion a month for just 200,000 new home sales all year. I’m not going to call that a win.

Congress isn’t ready to call it a win either. Despite a weak push to renew the credit for a third time (and some noise, believe it or not, to make it permanent), there’s nothing on the books so far to suggest that it will happen. I, for one, happen to think that’s a good thing.

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