Update: Tuesday Feb 10 — In a 61 – 37 vote, the Senate has passed their version of the Stimulus Bill that contains the $15,000 tax credit for home buyers. The next step will be a Joint Conference Committee where select members of both the House and Senate will attempt to reconcile the differences between their bills. Once that process is complete, the House and Senate will vote on the reconciled bill and send it to the President for signature into law. Some mainstream media is reporting this is expected by the end of this week. That time frame seems aggressive to me, but who knows how Washington works.
Wednesday evening’s post, Senate Approves $15,000 Tax Credit for Home Buyers, has generated a flurry of phone calls and emails from home buyers, real estate agents and even the media. People have questions, and they want answers.
Understandable.
Here’s the problem. . . The stimulus bill hasn’t been finalized yet. The House has passed one version, another version is being worked on in the Senate. Once the Senate passes their version of the stimulus package (a vote is currently expected on Tuesday, Feb 10) it is still not a law.
Since the Senate version is different than the House version, the bill will have to go to a conference committee consisting of members of both the House and the Senate in order to reconcile the differences between the two bills – and here there would be more opportunity for changes to be made.
There is no $15,000 home buyers tax credit – YET
THEN the bill goes back for voting. Assuming passage by both the House and Senate on the reconciled bill, it would be sent to President Obama for his signing into law.
Whew. It’s an involved process, and can be lengthy. Obama’s made it clear that he wants a bill to sign by Feb 16. Whether he gets that, only time will tell.
Everything I’ve read indicates there will probably be some sort of home buyers tax credit in the final stimulus bill. The details however, are subject to change.
So since there isn’t a Stimulus Bill even past the conference committee stage, there really isn’t much point in answering questions on what may, or may not, be in the final bill.
We’re just going to have to wait and see what the final bill looks like.
UPDATE Monday, Feb 9, 2009 – 10:00pm: Earlier today the Senate finalized their version of the Stimulus Bill which includes the $15,000 home buyer tax credit. They are expected to vote on passage tomorrow (Tuesday Feb 10). After that, it will go to a Joint Conference Committee where Representatives and Senators will arm wrestle, cage match, duel or whatever it is they do to reconcile differences between the House and Senate versions. Then it’s off to the President for signing into law. The final Senate version of the $15K tax credit for home buyers is here.
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Ok, so I am hoping that there is a CPA somewhere that can shed some light on how a state Mortgage Revenue Bond can prevent home buyers from getting the tax credit. Also I would like to know what other types of programs can prevent buyers from getting the grant.
**James Wheelock´s last blog post..Atascocita Meadows
I’m curious: If I close on a house before this bill is passed, am I ineligible for the tax credit? I am considering bidding on an auction this week, but I’d hate to throw away $15,000 by refusing to wait a couple weeks.
**Steam´s last blog post..Steam Shower Design
This would be great if it went through. Our economy is driven by home sales. Every business in the country would benefit if more folks could get into homes and start building equity again. I personally hope that the senate and the house can get on the same page on this. It would incredibly helpful for all of us.
Bryan
http://businessfusionpro.com
Steam – the current version (which has yet to pass the Senate, much less the conference committee after that) has the tax credit becoming valid when the bill is enacted. So if it stays as-is and is signed into law, then no, you wouldn’t be eligible for a credit on anything that closed before the President signed the bill into law.
Things could change though.
Personally, if it were me, I’d wait until the stimulus bill gets enacted.
jay – BUT there is a possibility that as it stands, you could earn $7,500 free and clear (if they leave the waiver of repayment of the current $7,500 tax credit) if you purchase BEFORE the stimulus bill goes into play, which could be a LOT better than a 15,000 non-refundable tax credit….either way it’s speculation – but as the bill stands right now, it looks like it would be better to purchase prior to the stimulus bill being passed into law…Again this is ALL speculation because as the article points out, nothing is set in stone. But if the bill stands as is, it certainly seems better to buy now than later, depending on your tax status. For us, I only owe $3500 in taxes each year – so the $15,000 as it stands would only provide me $7,000 – the $7,500 free and clear seems like a much better deal…
That’s a great point Tyler. The problem is, right now the whole thing is a crap shoot. We just don’t know what the final bill is going to look like. I suspect no matter what they do, someone is going to get screwed one way or another because they do or do not just fall to either side of some line.
The 7500 is not free and clear, it has to be paid back over 5 years. The 15000 is a much better deal.
Won’t let me edit. Meant too write that it has to be paid back over 15 years, not 5. The pay7back period starts after 2 years, and is over 15 years OR when you sell the house. The 15000 is a better deal, as it is a true credit and does not have to be repaid.
Lori – I don’t think the $15K credit is necessarily a much better deal. It depends on the person’s situation.
If someone has a low tax liability (say they pay $2000 a year in taxes) then $4,000 is the most they benefit from the $15K tax credit. They may be better off with the $7,500 interest free loan. That’s money in the pocket that could be invested. It’s a tough call, made tougher by the fact that he $15K credit cold change between now and when/if it becomes law.
Lori – also – as the current package stands, they have included a “Waiver of repayment” of the $7,500 tax credit for those who purchase in 2009. As Jay said, things could change, but the bills in their current form would set up three groups of people:
1. Those who purchased before January 2009 who are eligible for the $7,500 tax credit (loan) -who get $7,500 and have to repay over 15 years.
2. Those who purchased between January 1, 2009 and before the stimulus bill gets signed into law. They will get (as it currently stands) $7,500 free and clear, and not have to repay it. GRANTED things could (and most likely will) change – and this provision could be removed. Even if they remove the “waiver of repayment” clause, these people would STILL get $7,500 tax credit (loan).
3. Those who purchase AFTER the stimulus package gets signed into law. They will get the $15,000 non-refundable tax credit up to the amount they pay in taxes each year.
Jay – the ONLY way I see people really feeling bad about this is those who purchased in December 2008 (especially towards the end) who still have to repay the $7,500 (vs. those who purchased early 2009 who got the $7,500 free and clear) OR if they decide to make the 15,000 refundable. If congress offers $15,000 refundable tax credit then those who purchase prior to the bill going into law will “Get screwed”
For me, I am moving forward knowing that I am eligible for the $7,500 tax credit (loan). If they decide to waive the requirement to repay the loan – wonderful!!! But I am not expecting them to – because i know full well the terms of what I am purchasing my house for. I should REASONABLY be able to expect this, and I would only be dissapointed if they somehow made me ineligible for the $7,500. ESPECIALLY because I am one of the few people who this tax credit actually “stimulated me” to purchase a house. I was on the fence for a long time, and the $7,500 was a great incentive to purchase my first house.
Actually, I can see current homeowners (who currently do not qualify for the $7,500 tax credit) being upset, if this law gets passed the day AFTER they closed escrow – yes – there will be some upset people. Those people probably need to delay a little bit and see what happens with the stimulus package. As a frist-time homebuyer, I am a little blinded as to the plight of those who are current homeowners – sorry people – I wasn’t thinking about you – if i were in your boat – YES i’d be upset
Tyler wrote
>For us, I only owe $3500 in taxes each year – so the $15,000 as it stands would only provide me $7,000 – the $7,500 free and clear seems like a much better deal…
The $15,000 is reported to be a credit, not a deduction. That means it reduces your taxes $15,000. A tax credit is a GIFT – money in your pocket. Of course as Jay says we don’t know how the bill will turn out.
**Ned Carey´s last blog post..Lessons from Warren Buffett on Real Estate
I’ve gotten the best information from reading the blogs here. I have been in the process of purchasing a place when I found out about the $15 K Proposed tax credit. I then found out shortly after that it is not a rebate like the $7500.
I dont make enough taxable income to have the $15K be of any benifit to me. If they did chose to make it a refundable credit, it would be a fantastic deal for me. I would even enjoy the credit if i had to pay it back. They could possibly extend the payment term to the length of the mortgage or even leave it the same, either way is fine with me. However, with how the credit is currently written in the proposal, I am not very excited about purchasing a new home.
Going off of Ned’s comment,
I thought that credit meant that they would give you that ammount off of your final taxes owed (i.e. earned income credit, child tax credit). So if this proposal is actually a credit and not a deduction it is fantastic. Like I said before, even if it has to be paid back it would be well worth it. I think in order to make more people enj0y the tax benifit, it should be supplemented to the $7,500 (for a total of $15,000) for those who purchased in ‘08. Have everybody who recieved the credit pay it back over a certain time frame that way everybody is being treated fairly and the government is not just giving out money that it doesn’t have.
Jay,
The $15,000 tax credit for home buyers is still just a proposal, but the good news is that it is stirring plenty of interest from the consumer. Many of them are ready to buy property so long as they get some kind of assistance and this might be it. This could be the needed medicine to kick-start the sluggish real estate and mortgage markets.
i am not a first home buyer and i have a contract on a forecloser. a 15000 tax credit or loan for down payment would be the largest stimulas to home buyers in history. it is the only thing i have seen that will truly get the housing market going. i will close in march and am sweating this bill out.
Everyone’s so excited about government handouts. They’re gonna give me this, or they’re gonna give me that. It’s getting ridiculous. They stuck their nose into the housing market before. “Free” money is not a solution to any problem.
Given that I pay nearly $15,000 in federal taxes each year, I’d make out okay if the proposal goes into effect; nevertheless, my personal short-term gain is less important to me than the long-term value to the nation. Not only is it the wrong thing to do, but we also cannot afford it.
Ned – i understand the difference between credit and deduction. The difference is that the current $7,500 credit is refundable whereas the $15,000 is non-refundable – meaning that you are limited to your total tax liability. In my example, I owe $3,500 in tax liability each year. I pay (out of my paycheck) $4,500 in federal witholdings, so I normally get back $1,000 in a refund each year. With the current $7,500, I would be able to get a check for $8,500 this year, and payback the $7,500 by paying $500 a year for 15 years starting in 2010. IF they keep the stipulation to remove the requirement to repay, then I would get the $8,500 free and clear.
However, with the new $15,000 NON-refundable credit, I would only be allowed to get the $3,500 tax liability wiped out by the $15,000 credit, and I would get a check for all $4,500 I paid to the IRS over the past year. NEXT year, I would also not be liable for any taxes, and I could either change my witholdings so that my paycheck did not take any money out for the IRS each month, or continue the same path and get another $4,500 check for my 2009 taxes. Either way, the current $7,500 puts more money in my pocket right now.
Kevin – I agree – people need to not look at what the government does for them – it is all about personal responsibility. I know that by closing escrow tomorrow, I get the $7,500 loan – and I am ok with that – it was enough to get me to buy my first house. If I already own a house, then I would probably wait and see what the bill is going to do before purchasing right now…it doesn’t make sense to rush (unless you will lose out on a really good house).
AGAIN – keep in mind lots can change before this thing closes – but right now – new homebuyers (First time) shouldn’t worry, and people who already own homes should probably wait if they can (Just my opinion, and I admit I am NO expert – just someone who has done a lot of research because i am square in the middle of this.)
This tax credit will be very big news for home buyers; esp. if they keep it as a credit for all home buyers, vs. just first time home buyers
**Linda Craft-Raleigh Real Estate´s last blog post..Staging Your House to Sell
Tyler,
Thanks for the clarification. However it sounds like the $7500 has to be paid back and the $15,000 may not (depends on the final bill.)
It would seem to me that (by your figures) $7000 that doesn’t have to be paid back is a much better deal in the longer term than $7500 that has to be paid back. However I understand the desire to get a refund check of $7500 spendable cash now.
Whatever happens I hope it works out well for you.
**Ned Carey´s last blog post..How do I Make Money in Real Estate?
Seems like maybe they should give home buyers a choice and make everyone happy. But after it goes through the House it could be changed to something else entirely.
**Charles´s last blog post..Community Spolight: Beacon Hill in Mountain’s Edge
Ned – you are correct- as it stands right now (according to the law) -the only thing available is the $7,500 interest free loan. However, given the current legistlation – with no changes- the $7,500 does NOT have to be paid back (per the waiver of repayment clause) and it is refundable (meaning you get it whether or not you owe taxes) vs. the $15,000 which is non-refundable. In the end, I am sure it will all get sorted out. Of course, I would rather have a $15,000 non-refundable tax credit than the current $7,500, although the $7,500 puts more money into my pocket today – and will help with renovations to our home which was foreclosed before we bought it.
Either way, I’ll be ok. Even the $7,500 interest free loan will help a lot.
Great info here. Would like to add that I think both of these 7500/15000 is 10% of home price up to whichever is in effect when you close. Whatever day Prez signs, if it gets that far, will be enactment date & that will be the last day for the 7500 & the following day would start the 15000. Good Luck to all, may it all work.
**Barbara´s last blog post..$15,000 Home Buyers Tax Credit Brings 15,000 Questions – and no answers
PS) About the 7500 for those that have already closed . You do not have to wait until 2010 tax refund for your 2009 tax filing. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return, keep in mind an amended tax return can not be filed electronically) or 2009 return, your choice. This will also be true for the 15000, & can be split equally into 2 succesive yrs if & when it passes, check the IRS website for form & instructions once it’s law. See IRS form for 7500 # 5405 & instructions here: http://www.irs.gov/pub/irs-pdf/f5405.pdf
I was also told there’s another way you can get it even sooner via your witholding on your paychecks, you reduce your tax witholding up to the amount of qualifing tax credit giving you the funds by increasing your take home pay. I was not interested in this, therefore I do not have any further info for this way.
Hope this helps someone,
I read the last comment made by Barbara which was really helpful but i have a question; i have already e-filled and recieved my 7,500 first time home buyer credit for the house i bought on Jan 26, 2009 and IF (big if) everything gets passed including the wavier will i have to do an amended 2008 return so i dont have to repay the credit or am i screwed in repaying my 7,500 over the next 15 years no matter what? I know we can only speculate until the bill gets signed but i would like to see what info is rumored….Thanks
Nicholas,
I would speculate you will have to do nothing – IF they waive the repayment option…but that’s just speculation. The tax credit is the same – the only thing they would change is having to repay it or not. We won’t know for sure until this thing passes…
To close or not to close. That is the question. I’m so bogged down with speculation I don’t know what to do. It’s hard enough making wise decisions as a first time home buyer, but adding the stress of closing too early or late makes is worse!!!
This whole thing is very confusing and complicated like most ideas coming from congress.
First of all why not make it simple?
give $15000 to ANY home buyer , owner ocupant or investor, and monetize it right away as a down payment direct credit towards a purchase NOW! Or at least a refundable tax credit for all just by filing a return. not a credit only if taxes are owed.
Otherwise there are much too many restrictions ,
and eliminates millions of possible home buyers.
So is this 15k credit only for home owners that buy there house later in the year? Or is it retroactive to everyone who bought there house in 2008. I wasn’t able to qualify for the 7500 tax credit because I closed on my house in Feb 2008, I’m hoping I can get something for being a first time home owner.
It’s my understanding current bill remove the 7500 re-payment requirement for homes purchased from 1/1/09. Remember if & when this is enacted it may change other aspects of your 08 filing. Check to see if you qualify if you bought a vehicle, or are going to. Also something about an additional 500/1000. In other words avoid several amended filings for those that have already filed. The following has always been true. What you did or did not quailfy for in the past does change per tax laws are always changing.
Heidi,
Sorry but no one has been talking about retroactive tax breaks…everything looks like they are planning on breaks for the future – not the past…things could certainly change…but at this point it’s not looking likely
This is a huge scam. Think about, you with a FHA loan, you only have to put 3% down, so you would have to buy a $500K house to use $15K, but if you qualify for a $500K house then will NOT get the credit, because you make so much that the credit is phased out. What, you think it helps the poor then? Ok, lets think about that. You are buying a $150K house, well guess most local counties and cities already have a down payment assistance program to help you! So Congress is basically scamming people into buying housing and not giving much of anything to anyone. Total rip off. BTW, what is the median price for a house in the USA? Uh $320K. OMG, make sure you check how much is phased out before falling for this rip off.
This is actually bad news for me. I assumed incorrectly that this 15k tax credit was refundable like the 7.5k that’s in effect now. I need help with my down payment, and I get money back every year from the gov’t in taxes. If I’m reading this all correctly, this new 15k will do nothing for me and take away my chance at getting the 7.5k towards a down payment?!! Ahh!
I need some help poking holes in my tax manuever, if you please. Here goes: I’ve owned my home for 5 years, been paying down the mortgage (5.75% 30-yr fixed), all the normal stuff. So we’re ready to refinance, should close next week. Here’s where it gets interesting: I sell the house to a related entity (e.g., a trust, LLC, my brother…) for $150,000 and then buy it back for $150,000. Now I’m a homebuyer and eligible for the $15,000 credit. Since I’m refinancing anyway, the trick is to transfer in between loans.
So, what am I missing?
hagfish, You would not get the full 15,000 unless your tax liability was at least 15,000. It seems that it is a lot of trouble to screw with the system if you will not benefit.
Thanks for the response, Tram. You’re right, my wife and I won’t get the full $15k unless we create that much liability in 2 years. Currently, we only generate about $2,500 per year in federal tax liability, so the value is $5,000. Still, that’s a decent bit of scratch for just generating a few quit claim deeds. Given the tax consequences, I would prefer the House version of a refundable $7,500 credit with no payback but I won’t say “no” to five large.
And if I can do it, what’s to stop 5 million other homeowners from doing it when rates dip in the low 4s?
@Robert – With all due respect, you’re misunderstanding completely the way the bill is written.
First, FHA loans require 3.5% down, not 3%. But that’s neither here nor there as this credit has nothing to do with down payments.
The credit is for 10% of the PURCHASE PRICE. So you don’t “need” to buy a $500K home to qualify for the full amount. There are also no income limitations on the current Senate version of the bill.
A $150,000 home will “qualify” you for the full $15,000 credit. You still may not get all of that credit if your tax liability for the next two years is less than $15K.
I’m not sure how potentially paying zero Federal income tax for two years, or paying $15,000 less in taxes over one or two years is a “total rip off”.
@J- you couldn’t use the original $7,500 “credit” for a down payment either. It is to be paid as a credit/refund when you file your taxes — AFTER you purchase the home.
@hagfish – what you are describing is basically fraud. I suspect the IRS frowns on things like that. Not to mention the fact that if you read the cross-references in the bill as it’s currently written, it prevents you from buying a home from a relative. Sure you could grab a friend to help you carry out the fraud, but my guess is they’d want to split the money with you. My bet is that you wouldn’t be able to split the prison sentence though. As annoying as the IRS and politicians are, they’re pretty smart. Deeds and property transfers are recorded and public record. It wouldn’t take much effort at all to sniff out the “maneuver” you describe.
Thanks for putting some finer points on it, Jay, but you haven’t convinced me it’s fraud yet. I’m open to the idea that it crosses the line but I haven’t seen the evidence. There are a myriad of tax avoidance measures that involve placing property in a related trust (such as a revocable trust), even if temporarily (1031 tax exchange). In fact, my bank agreed to create the trust if necessary. I certainly don’t expect the IRS to give a ringing endorsement of the idea, but the tax law is the tax law (and we haven’t seen the final law pass yet). Heck, I don’t the idea. For that matter, I don’t like the idea of offering post facto incentives, like those found in the stimulus package.
BTW, I work in a recorder’s office and, frankly, we don’t get enough mention. Thanks for the shout out!
when I was a little girl I saved all my money and purchased a bike for $200. A few weeks later my sister wanted a new bike too, but she didn’t have enough money because she spent all her allowance on candy. My mom wanted to encourage her to exercise because she was fat from eating so much candy, so my mom offered to give her $100 to buy a bike that she didn’t have to pay back if she promised to exercise. So my sister took the $100 and bought the same bike that i did on sale for $75, and rode the bike to the store where she spent the other $25 on candy. When I asked my mom if I could also have $100, she said “you’re not fat”
Moral of the story…live large, don’t work too hard, get fat…if you’re in a bind don’t try to fix it yourself, that’s what the government is for.
Oh, and thanks mom, lesson learned.
Hagfish,
I like the way you think. Lets come up with even more ways to mess with the government because lets face it America’s America. We live to be enabled by our great leaders. Why work hard and be honest when there are ways to get ahead and reap the benefits of other people who work so hard??? After all that’s what the majority of the people who need “tax advise” are writing in for. How can I get my hands on the free money??
PEOPLE wake up. The people who need the money are the ones who are honest and hardworking…let them suffer while we reap the benefits…free money…free money…
Mary gets it. Incidentally, mary, you should sell your sister* your bike for $75, take the $125 capital loss plus any section 159 expense you can claim on the bike while it was in your possession. Then buy it back from her on contract. Or, retain a life estate in the bike. Either way, you’re golden.
* so long as the property is not acquired from a person whose
relationship to the person acquiring it would result in the
disallowance of losses under section 267 or 707(b) (but, in
applying section 267(b) and (c) for purposes of this section,
paragraph (4) of section 267(c) shall be treated as providing
that the family of an individual shall include only his
spouse, ancestors, and lineal descendants)
[sister=good, grandma=bad]
LOL, now that’s tax advise!!! teehee
Mary, Hagfish – You guys are killin me!
And I *love* our recorder! In my corner of the world, when deeds get recorded I get paid!
Anytime I can help ease your burden Jay!!
I am looking at buying my first house in the next couple months for about $200k. With the way I understand it now the $15,000 can only be credited toward what I owe at the end of the year over and above on federal taxes. Should I claim 6 dependants to make sure I owe the maximum for the $15,000 to absorb, or will I get a refund of any federal taxes I have paid? I already pay close to 10k a year in federal taxes alone if not more. Will that be paid back to me?
Thanks Mary…
@Don – the credit, assuming it becomes law and doesn’t change between now and final passage, is a tax credit applied to your total tax liability — your tax bill so to speak at the end of the year.
Claiming excess dependents generally lowers your tax liability.
The credit can also be split evenly between two years (again, assuming it doesn’t change).
So if you pay 10K in taxes for 2009, I’d think you would split the $15K credit in half — apply $7,500 as a tax credit in 2009 and the other $7,500 in 2010.
Applying the entire $15K to a $10K tax bill would be throwing that $5K away — the tax credit is “non-refundable”. They aren’t going to send you a check for the difference.
But split it as in the example above and you’re only paying $2.5K in taxes in both 2009 and 2010. Sure beats the $20K you’d normally be paying….
And of course, consult a tax professional FIRST.
Make sense?
great article, also loved reading the comments. Thanks for providing the facts.
**Kathy Torline´s last blog post..$100.00 HUD homes — an amazing deal for buyers
You guys are awesome, I read all of the above smart posts, never done this before on a blog (I think)…
here is my situation, “taking a deep breath”
I am single no dependents and made 165 K in 2008, didnt file taxes yet. I am closing on 2/15/09 on my first home. What should I do? delay closing? or go for it?
I am getting that feeling that I am the one getting screwed in this bill….
Please advice, so I know what to tell my realtor today!
and another question….
when is the official sale date of a house? Is it when it gets recorded or something else?
just to add to the drama, my locked rate expires on the 2/15/09 and my realtor and loan officer said we must close by the 15th or else i have to pay $500 to extend my awesome locked rate of 5% for another week till 2/22/09. Does closing escrow include recording the sale???
This is major suspense…. lol
My question is that I own a home in another state, it was a primary residence till i moved last summer to my current state where i am renting an apartment and am looking at buying a home here, I have chose to keep my first home as a vacation home I dont rent it out or any thing, under the current plan i dont qualify because i have owned a primary residence in the past 3 years, will that be the same with the new plan? Or will i qualify? Please advise.
I think this is great and all, but what about for those of us who want to refinance? I think it’s great to entice new home buyers, but I feel like those of us who have owned homes and made the payments on time are getting the shaft. The market where I live, like most places, is soft and I would have a hard time selling my condo so that I could purchase a new home(units identical to mine ahve been for sale longer than 6mos). I was able to refinance in July before the credit market hit the skids, and saved ~1% on my interest rate and am now debt free besides the mortgage. So that was good, but still, I feel like those of us who bought what we could afford and kept up teh payments are getting left out in the cold in this housing mess.
Ok, rant over
I closed on a house on February 2, 2009. I just e-filed my taxes a couple days ago, but did not put in for the $7500 tax “credit” that you would pay back. I was under the impression I would have to wait until next years’ taxes because my house was purchased after January 1, 2009. What are my options with this new tax credit, since i have not claimed the tax “credit” that needs to be repaid? Any answers/advice would help. Thanks!
I closed on a house on February 2, 2009. I just e-filed my taxes a couple days ago, but did not put in for the $7500 tax “credit” that you would pay back. I was under the impression I would have to wait until next years’ taxes because my house was purchased after January 1, 2009. What are my options with this new tax credit since I have not claimed anything yet? Am i eligible for this 150000 credit or would I be stuck with the $7500 interest free loan you have to pay back? Any answers/advice would help. Thanks!
Okay, I’ve been watching the developments with this whole home buyer tax credit and I’m a little confused as to what I need to do. I closed escrow on my house last Jan. 28th. I still have yet to file my taxes, I have an appt. for this coming Sunday, February 15th. I qualify to get the $7500 tax credit that I have to pay back. Should I wait to file my taxes and see what bill passes or should I do it now? I have read somewhere that if the new bill that the Senate proposes passes then it would override the bill from last year if you buy your home from April to July 1, 2009. I understand that the new bill would take effect the day the President signs it, but what happens to those people who bought their house from Jan. 1st to the day the bill get s enacted? Do you see my dilemna here? I don’t know if I should file right now or wait. I don’t want to lose out on the tax credit and get screwed. I don’t really care if I have to pay it back. I never thought that owning home was possible due to my credit, but Wells Fargo approved me because I had re-established my credit. I pay my bills on time and to me, the $7500 tax credit is an opportunity for me to pay some bills and put me on the right track as far as my finances is concerned. I think that it’s a great incentive.
Hello Speculators! I am one of those frazzled folks who just closed on my first home Feb. 2nd. There are no definite answers to the questions about how much will be given and what dates will be used to determine the amount UNTIL THE BILL HAS BEEN SIGNED BY THE PRESIDENT. It has to go through negotiations between the House and Senate, which will likely take 3-7 days. Only then, will we know the answers to who gets what and when. Believe me, I am very curious to know.
I have already filed my taxes, and claimed the $7500 credit (no interest loan). So, Marie, you can either wait to file your taxes until the bill has passed, or go ahead and get the $7500 now. I would wait though, unless you need the money right away. Whatever eventually passes will be available to anyone that meets the requirements.
Phoenix Real Estate Guy, I used the FHA loan for my purchase and only put 3% down, not 3.5%.
Also, this is a tax credit, not a claim against your tax liability. So it this passes as it stands, if you buy a $150,000 house, you’ll get $15000 back from the govt. at some point in time on your taxes. Most sources say it will be paid over two years.
If I wait to claim my $7500 tax credit until next year’s taxes (2009)…will the bill passed in the Senate today cancel out the current $7500 tax credit (no interest loan) that was currently in law? I just don’t want to wait until this bill is passed, find out that it replaces the old bill, and get nothing out of the deal. Even the no interest loan would be nice right now.
Jason wrote: “Phoenix Real Estate Guy, I used the FHA loan for my purchase and only put 3% down, not 3.5%.”
Jason – HR3221 (Housing and Economic Recovery Act of 2008) changed the FHA down payment requirements from 3 to 3.5% effective Jan 1, 2009. Maybe your loan was processed prior to that, or there was a different date for in-process loans. But new FHA loans require 3.5% (and congrats on your new home purchase!):
“SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWN PAYMENT ASSISTANCE.
Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended to read as follows:
‘(9) CASH INVESTMENT REQUIREMENT-
‘(A) IN GENERAL- A mortgage insured under this section shall be executed by a mortgagor who shall have paid, in cash or its equivalent, on account of the property an amount equal to not less than 3.5 percent of the appraised value of the property or such larger amount as the Secretary may determine.”
“Also, this is a tax credit, not a claim against your tax liability. So it this passes as it stands, if you buy a $150,000 house, you’ll get $15000 back from the govt. at some point in time on your taxes. Most sources say it will be paid over two years.”
As it’s currently written (which could change in conference committee) the $15K tax credit is “non-refundable”. This means you can only get UP TO your tax liability. It can be evenly split over two years.
So, if you pay say $4,000 in taxes in 2009, you can apply $4,000 of the credit (effectively reducing your 2009 tax liability to zero). You could then apply another $4,000 credit to your 2010 tax liability. In this case you would have used $8,000 of the $15,000 credit. You will NOT get refunded the remainder.
Unless you have a total of $15,000 in taxes owed (over 2 years) you will leave a portion of this credit “on the table”.
Of course, it’s all subject to change until it’s actually signed into law.
@Nancy – first, are you sure you’re closing on 2/15? That’s a Sunday and it would be extremely unlikely to close on a Sunday.
“Closing” is commonly thought to be when documents are signed. But it’s actually when the deed transferring ownership is recorded. (at least in Arizona, and my understanding almost everywhere else. Almost).
I would strongly suggest you consult a tax professional. Your income is too high to qualify for the existing $7500 credit for first time home buyers. There is no income limit in the PROPOSED $15,000 credit (but it isn’t law yet, that could change).
There also isn’t any current provision to make the $15K credit “retroactive”. As written, it becomes effective the day of enactment. It could be enacted by 2/15. Obama has said he’d like it by 2/16, but it’s going to a joint conference committee to work out differences between the House and Senate versions — so there is no way to know what it will ultimately say or when it will actually be signed into law.
You’re right on the edge, which is why I’d be talking to a tax professional.
@Bruce – as the Senate version is currently written there is no “first time home buyer” provision. It must be your primary residence, which it sounds like your new home would be.
But I have to keep saying this: there is no law yet, it could change, and I am not a tax professional.
@Michael – My understanding is that you have an option of claiming the $7500 “credit” (which is really a zero interest loan) in either 2008 or 2009. As it is currently written the $15,000 credit becomes effective the day it’s signed into law, so your Feb 2 would not be eligible.
But who knows, that could change in the final version of the bill.
@Marie – again, I am not a tax professional and the $15,000 credit isn’t even a law yet. It sounds like you’re meeting on Feb 15 with a tax preparer? I’d ask them your very reasonable questions.
As it is currently written (which could change) the new law won’t affect the existing $7500 credit — and that’s the law the would impact people buying between Jan 1, 2009 and the day the new law is signed by the President.
This is my understanding from my CPA. Whatever law is in effect when you close on your home is what you get. If you have already closed or close on or before the day Obama signs this new bill then you will fall under 7500 law. All closings done on the day after he signs or later will fall under the 15000 law. When you file your taxes has nothing to do with this. The only thing the ones that fall under the 7500 rule need to find out is if this new law waives the repayment. If you qualify, this is FYI to you, you won’t have to do anything. The ones that fall under the 7500 may or may not have to repay it, so check to see if that is indeed been waived & if so what home closing dates are eligible, was talk it would go back to 1/1/09. Again tax filings dates will not change that. Taxpayers can elect to treat 2009 closings on 2008 tax filing, or 2008 amended, or your 09 filing, your choice. And this will also be true if the bill isn’t changed in it’s current state, and the 2nd successive year on the 15000 the year after your choice. As far as any waiting or delaying should be in regards to closings, do you want the 15000, then don’t go to closing, until it’s law. Make sure you understand what you will or will not qualify for. I just delayed my 2/17 closing to 2/23. I want the new law. Could it have happened for me on the 2/17 closing, only if he signs it on or before2/16. Only time will tell, Good Luck all.
@Michael – as it’s currently written the new $15K credit only replaces the $7500 “credit” as of the day the new bill becomes law. It’s not (currently) written to replace anything that existed prior to it being signed into law.
But, as I’ve been harping over and over in these comments, the $15K credit isn’t a law yet and it’s likely some provisions will change before it becomes law.
The day it’s signd will be last day for 7500, next day starts 15000
Thanks for the explanations, it is very much appreciated. I was looking at when i filed my taxes versus my closing date. As long as I am able to claim the $7500 tax credit (no interest loan) on my 2009 tax filing, that’s really all I’m worried about. I know i won’t qualify for the $15,000. But if they could waive the pay back fee on the $7500 tax credit in the new bill that is passed, that would be even better. Thanks!
I’d like to thank everyone for their comments, it really enlightened me a lot on this situation. I am planning on claiming the $7500 tax credit on my 2008 taxes. I just hope that they could waive the pay back fee back to Jan. 1st, that will be an awesome thing to happen!
Hey Jay~
OK- I know this blog has talked “kinda sorta” about our situation, but would REALLY appreicate a direct answer as this is so confusing…
We bought on April 22, 2008 and qualify for the full and current $7500 loan.
I know there are a bunch of “what if’s” but I am worried about passing the opportunity if the bill goes through and only includes 09 purchases. Everything I read about the new bill either a. forgives the 7500 ONLY if purchased after 1/09 and b. gives the 15k non-refundable credit to buyers who purchase after the bill was signed.
Keeping all of that in mind, that would mean I should just quickly file to try and get anything because I bought in 08- right?
I would rather get something than nothing!
Also, if the above changes, can’t I just file a amended return?
Thanks so much for your help!
Anne
Anne –
Everything I’ve read says that those that bought in 2008, and qualified for the $7500 “credit” (which you correctly state is really a loan), will still have that available to them.
The new $15K credit, in it’s current form, changes the ending date of the current $7500 credit from July 1, 2009 to the day of the enactment of the new bill.
So (unless it changes, which it could), the $7500 law doesn’t go away, it just ends sooner (which makes sense. It’s confusing enough as it is, can you imagine the confusion if BOTH the $7500 credit AND the $15K credit were active at the same time?)
Jay – You are correct, I am incorrect about the credit only applies to the down payment, I could have sworn I read that; I eat my words on that. Regardless, think about it, you are buying your first home, the median price according to US Census is $291,800 (in 2008). So how much do you have to make per year to pay the loan? According to Freddie Mac calculator (http://www.freddiemac.com/corporate/buyown/english/calcs_tools/) with 10% down at 6.5% 30 year fixed, you have to make $7K per month (with no student or car loans, oh and you have good credit for that rate). So you are making $84K year. As it turns out the $7500 credit phases out after you make $75K a year and I bet the new $15K will phase out too there too. SO:
- You don’t get 10% of a house, if your price is $291,800 (which is the median price).
- You don’t get the full $7.5K (or now $15K), because you make too much.
So what do you get? You get some help. Sure it is nice, but is far from really giving the majority of US citizen $7.5K or even $15K.
I think I ended up with $3K~$4K from $7.5K. And the one I bought into it is still a loan that has to be repaid.
So, why is it they don’t say, most people will likely get $3K to 4K, because it is better to fool not too smart people (like me) into thinking, I get $7.5K. Sure it is not a scam if you read all of the fine print, it is just a good sales job!
There has been many blogs on tax liability not enough to offset the tax credit amount……I wonder if it would be a good tax strategy to have employers withhold less of your payroll taxes (or claim more exemptions) whereby your year-end tax liability nearly matches the $7,500 tax credit over the 2 year period (assuming the new $15K tax credit holds true).
Thank you for this website. For the past two weeks I have been looking for current, relevant information on the tax credit and the only place I can find it is here. Thanks
Robert said: “. . . it is just a good sales job!” True, and sadly I think that’s what most politics boils down to.
@rx – lowering your with holding seems like a viable option. Someone mentioned it here in a comment. Either on this post or another one on the subject. I’d definitely consult a tax professional. You can be penalized if you under-with hold.
@Gary – You are more than welcome! I’m glad you find it useful. There will definitely be more once the bill is finalized!
Thought I would share this article from CNN:
http://www.cnn.com/2009/POLITICS/02/11/stimulus.plan/index.html
Here’s the key point:
“A Democratic source also said a plan to offer tax credits to homebuyers that is in the Senate bill will be scaled back to make room for House priorities and a Senate proposal to offer tax incentives to buyers of American-built cars will be nixed.”
Looks like the $15,000 will be scaled back – we don’t know to what – but right now, it “seems” that $15,000 will be off the table -
The tax credit was doubled after 8 months only. Shows the sorry state of the housing market. With median home price in the USA aroun $160K, the government is essentially paying the downpayment. Yet people don’t have the confidence to buy. On another note in a recent article on this topic, it was cleat the tax treatment is going to confuse a lot of people.
**Andy´s last blog post..US Automakers Bailout – A Bridge to Bankruptcy or a Road to Salvation
“Don 02.09.09 at 10:51 pm
I am looking at buying my first house in the next couple months for about $200k. With the way I understand it now the $15,000 can only be credited toward what I owe at the end of the year over and above on federal taxes. Should I claim 6 dependants to make sure I owe the maximum for the $15,000 to absorb, or will I get a refund of any federal taxes I have paid? I already pay close to 10k a year in federal taxes alone if not more. Will that be paid back to me?”
All-
There seems to be some confusion on tax liability/tax withholding. By increasing your allowances on your W-4 (”claiming 6 dependents”), you are not changing what you owe . You can not increase/decrease your tax liability by adjusting your withholding. Your tax bill is based on your income. All that adjusting your withholding does, is attempt to ration out what you will owe come tax time. You’ve done this most effectively when your refund at the end of the year is $0. A tax refund is not “free money” from the government. It was you giving the government an interest-free loan.
Now, provided some version of this tax credit passes, and an individual has already filed their 2008 return and doesn’t want to A)file an amended return or B)wait until filing 2009 return, they can adjust their paycheck withholding by claiming more allowances to receive that cash sooner.
If this doesn’t spark home sales, will the government sweeten the deal, like they did with the existing $7,500 credit? And if it does spark sales, will they extend the current deal? Would you recommend homebuyers act now or wait a few months, or through the busy homebuying season, to see how this sorts out? If we’ve learned nothing else from the bank bailout, the government seems more than willing to offer a better deal if their original efforts fail to produce the intended reaction.
THere is no more 15k tax credit. They took it out.
http://news.yahoo.com/s/ap/20090211/ap_on_go_co/congress_stimulus
Did they agree to waive the payback fee of the $7500 tax “credit” (it was a no interest loan) for first time home buyers?
Eliminating the $15,000 tax credit is bullshit. Both the house and senate versions had that in it.
Michael – no one knows yet – no one has seen the finalized version…
Robert – only the Senate had the $15,000 tax credit in it – the house version did not – the house ONLY waived the current need to repay the $7,500. The senate added the $15,000 which looks like it is getting “trimmed” “scaled back” or however you want to look at it. Right now everything is only SPECULATION until we see the finalized version, it gets passed by the house and senate, AND the president signs it into law. Until that time – we don’t know for sure
http://latimesblogs.latimes.com/laland/2009/02/home-buyers-can.html
Looks like the $7500 will be the amount that they go with, if the bill is passed in the coming days, for home owners that purchased after January 1, 2009.
What about homeowners who currently do not qualify for the $7,500 tax credit? If this law gets passed anytime after excrow is closed Wouldnt it make sense if for them to wait?
I have a question for you….
We bought our fisrt home in may 2008, and e filed our taxes and claimed the 7500 tax credit. We are in the process of buying a new home, and it is expected to close march 15th. If the new law passes with the 15000 tax credit, can we also claim the new tax credit?
@Raj – to be perfectly honest, I’m not sure if anything makes sense. Personally, if I had a home in escrow right now that was scheduled to close, I’d probably try to delay it until this thing becomes law and decisions can be made. But every situation is different.
@Amanda – the $15K credit appears to be gone. It’s been reduced to $7.5K, $8K or “effectively eliminated” depending on which news source you want to believe. The only certainty right now for you is that the stimulus bill should be signed into law well before your March 15 scheduled close (most sources are saying possibly by Friday). One recent report I saw said the revised bill goes back to first time buyers only. IF that is true, then clearly your current home purchase would not qualify. Also, I would check with a tax professional quickly because there are existing terms in the $7500 law that require repayment of the “credit” IN FULL on your next tax return (such as selling the home and/or no longer using the home as your primary residence). Depending on what you are doing with the home you’re claiming the $7500 “credit (which is actually a zero interest loan), you may fall under those repayment criteria (see the IRS FAQ for more)
Jay – it looks like the final bill will have an $8,000 tax credit (up from $7,500) and NOT need to be repaid…and will be effective for homes purchased on or after January 1st, 2009 and before August 1, 2009. According to the LA Times:
http://www.phoenixrealestateguy.com/15000-home-buyers-tax-credit-brings-15000-questions/1868
GRANTED – the paper could have it wrong – but they have been the most specific of any other article I have seen.
On top of this, it STILL hasn’t been voted on by the house or senate, so there’s no telling if more changes could come if they can’t get it together.
My guess though, is that given the political climate, I can understand why they went the way they did. In the senate, the Democrats went with the republicans on the $15,000 non-refundable credit, in hopes of making the bill more bi-partisan. When they realized it wasn’t going to help, and it wasn’t going to get them any more votes, they went back to the original plan. They included the 3 republican senators in the compromise, and increased it to $8,000 – but it didn’t make sense any more to keep the full $15,000 in. ESPECIALLY because Democrats tend to want to give refundable tax credits, where republicans tend to prefer non-refundable ones. This is all purely speculation – but it is not surprising.
IF this is true – this is wonderful news for us – looks like we are closing on Friday – the loan is supposed to get funded today, and then we’ll get our keys tomorrow.
USATOday also had an article supporting the $8,000 compromise
http://www.usatoday.com/news/washington/2009-02-11-stimulus-conference_N.htm#chart
They could be reporting it wrong – but these two articles are the only ones who mention the specifics of the homebuyers credit in their articles on the compromise bill. Until the full text is release (which should happen sometime today) we can only rely on the reporters here…and hope they are accurate
I think this finalized bill only pertains to first-time homebuyers – not homebuyers in general. It amends the statute to forgive repayment from Jan1 – Aug 09 and increases the credit to $8,000. Income limitations, etc remain the same. I really don’t think this pertains to any homebuyer. Sorry.
Here’s something i found:
http://c-span.com/pdf/taxprovisions.pdf
looks like $8,000 – need to purchase a home in 2009 (January 1 – December 31st) need to be a new home owner…
It is amazing the transformation this bill is taking in such a short time; still no clear answers for anyone though. Let’s hope they decide something soon, though it may end up being better for the economy overall if there isn’t any more stimulis out there to artificially support it at a level higher than it should be-eventually the cards will still fall where they should be, no matter how much money we pump into it.
**MaryAnn Knell-Peoria Real Estate´s last blog post..10 Steps to Achieving the American Dream of Home Ownership!
My fiance and I are purchasing a home and closing April 15th. I make more than 75k but together we make less than 150k. We are getting married in October. Filing taxes in 2009 will we be eligible for this since we will file jointly, or do we need to be married before purchasing the home to be eligible? I just want to make sure my income doesn’t cost us the credit.
Mary and Hagfish had me laughing so hard I had to comment; you guys-points well made on both sides, but I do think Hagfish is crossing the line into fraud with your idea. But hey, maybe the IRS won’t catch you; it seems most of the people in charge don’t know how to pay their own taxes, let alone figure out if others have done it correctly…lol
For those following – i’ll post this here:
http://appropriations.house.gov/pdf/Recovery_Bill_Div_B.pdf
See page 24 – it looks like the final measure has $8,000 for first time homebuyers who purchase between January 1, 2009 and December 1, 2009, and no need to repay it as long as you live in your home for three years.
Don – you’ll need to consult a CPA or attorney once the bill is finalized to figure out how it impacts you directly…
Hello,
I thought that they were offering $8K in tax credits and 15K in interest free loan for 15 yrs to new home buyers. That’s what I heard in the news. Could someone please confirm that for me or shed some light on the subject…
Mike – the $15K never made it into the bill that was signed into law. There was an existing $7,500 tax “credit ” (that was actually an interest free loan paid back over 15 years). That $7500 is now in effect from April 9, 2008 – Dec 31, 2008.
The new $8,000 true tax credit is in effect (for 1st time home buyers) from Jan 1, 2009 – Nov 30, 2009.
Hi Jay, added some information about the Phoenix $15k grant to buy foreclosure properties on my site. Is there any way I can write a guest article on your site? Or, do you want to place a friendly link to my site? Many thanks!
Phoenix $15000 Grant
**Steve Trang´s last blog post..$15000 Phoenix Grant Update
Come on are you sure Phoenix is giving 15k grants for property. I didn’t read it any where up till now.
You didn’t read anything here about Phoenix giving 15K grants for property. This post you commented on is about the proposed federal 15K tax credit (that ultimately became the current 8K credit for first-time buyers).
Phoenix DOES have a program, seriously flawed, that provides some 15K loans, not grants. More info on that is here:
http://www.phoenixrealestateguy.com/phoenix-to-offer-15000-loans-to-purchase-foreclosed-homes/2059
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Unfortunately, real estate sales seem to be stagnate all over the world these days. It sounds like there may be an increase in sales for real estate agents over there, I am sure that will be very welcome after what many agents have been through.
Only 15,000 questions? I have a million.
8k it is not much.
My guess though, is that given the political climate, I can understand why they went the way they did.