Extend the Credit; Curb the Fraud
Last Friday, President Barack Obama signed a bill extending the first-time homebuyer tax credit through April 30, 2010. Though controversial (more on this later), overall, it’s a positive step to improve our economy.
Called the “Extended Home Buyer Tax Credit,” this program consists of the following: A first-time homebuyer is someone who purchases a home between November 7, 2009, and April 30, 2010. To qualify as a first-time home buyer, the purchaser – or his/her spouse – may not have owned a residence during the three years prior to the purchase.
Single buyers with incomes up to $125,000, and married couples with incomes up to $225,000, may receive the maximum tax credit. This limit is up from $75,000 for a single buyer, and $150,000 for married couples.
A new twist to this is that the credit decreases for buyers who earn between $125,000 and $145,000 for single buyers, and between $225,000 and $245,000 for buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income are not eligible for the credit.
As with the 2009 version of this tax credit, the buyer does not need to repay the tax credit if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount of the credit will be recouped upon the sale.
What I like about this extension is this: so long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close. This will allow lenders and title companies more time to take care of their clients as we anticipate a flurry of activity next Spring.
A final difference is this: current homeowners are now eligible for a tax credit – $6,500. A current homeowner is defined as owners who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight. This is an excellent addition to the bill, as it should help those who are downsizing or moving into a larger home.
There are a few politicians who worked hard to hammer out the deal: Sen. Johnny Isakson, (R., GA); Senate Majority Leader Harry Reid (D., NV); Finance Committee Chairman Max Baucus (D., MT); Sen. Chris Dodd (D., CT), chairman of the Banking, Housing and Urban Affairs Committee; and Sen. Joe Lieberman (I., CT), chairman of the Homeland Security and Governmental Affairs Committee.
No bill is without its share of controversy, and this one is no exception. According to the Joint Committee on Taxation, the extension will cost $10.8 billion over 10 years. In an era lately when we’re spending so much money, I don’t know if we can afford to spend any more.
Also, some critics have suggested that these buyers would have purchased a home anyway. This argument holds less weight, as the $8,000 (or $6,500) would likely be used for home improvements and/or the contracting of such work.
My biggest concern (besides the $10.8 billion) is still the amount of fraudulent claims on the $8,000 tax credit cheaters are trying to get away with around the country. According to the Treasury Department, some 74,000 people have claimed more than $500 million in credits, even though they may not be first-time homeowners. And more than 580 children, including some as young as 4-years-old, have claimed the credit. Crazy, isn’t it? We need to tighten these loopholes.
My bottom line is this: the Homebuyer Tax Credit, and its extended version, has helped curd the decline in our economy. When, by the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, then surely this is a good thing.