Homebuyer Tax Credit Extension: It’s Crunch Time

There has been a ridiculous amount of material written about the (up to) $8,000 tax credit for first time home buyers. I’m guilty as charged (here are links to my 16 previous posts on the 8K tax credit).

The current incarnation of the tax credit ends on December 1. You must close on a home by November 30 to qualify for the tax credit. Given that today is October 24, if you aren’t under contract to buy a home right now, there is virtually zero chance you’ll qualify for the tax credit as it currently stands.

Lawmakers are scrambling at this very moment to extend or possibly expand the existing legislation. Here is a summary of some of that activity:

UPI is reporting that Senator Johnny Isakson, who has lead the charge for a home buyer tax credit in the Senate since Day 1 has reached a point of compromise. Isakson has always wanted to see the tax credit at $15K, not limited to first time buyers, and the income limits increased. According to UPI, Isakson will introduce an amendment for a six month extension rather than 12 month and keep the credit at $8,000. He will still try to expand it to all primary residence buyers and raise the income limit to $150K for an individual or $300K for a couple.

The Wall Street Journal reports that Isakson is “cautiously optimistic” that an extension – with procedural safeguards attached to stem the ever-growing tide of fraudulent credit claims – can move ahead in the Senate next week.

CNBC is reporting that Senate Majority Leader Harry Reid is making a counter-proposal to Isakson’s tax credit extension that will phase out through 2010:

Under Reid’s plan, the $8,000 tax credit would be phased out over time, dropping to $6,000 in April, $4,000 in July, and $2,000 in October, before expiring at the end of 2010. The plan could come to a vote as early as next week.

Opinions are mixed about whether the tax credit should be extended. As I’ve said several times here, buying a home just to get an $8K credit is not a good idea. That 8K will be long gone before your commitment to buying is complete. There are many good reasons to buy a home, but if the tax credit is your primary reason, or if the only way you can get into a home is with that money, then (in my opinion) you’re making a mistake.

It looks like next week is going to be an interesting one on the legislative front with regard to the impending end of the homer buyer tax credit. We’ll keep a close eye on things and report back what we hear!

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Tagged as: Home buyer tax credit, Isakson, Reid

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Using the $8,000 First Time Homebuyers Tax Credit as a Down Payment. Sort of.

THE TAX CREDIT HAS NOT BEEN EXTENDED. Yet. So PLEASE stop saying it has been!

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Jon Griffith

I'm not a huge fan of the tax credit, because it's tax payers who are paying for it, even though it has helped me with my clientele. If I were a first timer, buying a home, the first place I'd put that tax credit would be on a principle payment on the house, or on unsecured debt, provided I have stopped borrowing money...otherwise, it's on the house immediately.

Portland Realtors

The tax credit really should improve the market at least short term. Locally, we arelearning that many people are looking to take advantage of the credit soon.

Taranfx

I agree.

Karen Goodman

Jay - I appreciate you keeping me up to date on the latest news regarding the tax credit. I think that after over a year of tax credits available, the time has come for it to end. People who should be buying, the ones with stable jobs and some savings set aside, had plenty of time to make a purchase. Whenever it ends, there will be an aftereffect with slower sales for a few months. I sure would prefer the burp in the market to happen over the winter, when sales are normally slow, than having a tax credit end or phase down to low levels in the midst of a spring or summer season.

Tony Sena

I like Harry Reid's plan of phasing it out over time and it's not because he is our Senator from Nevada :)

Jay Thompson

Tony - I never thought I'd agree with Reid, but his phased out plan really does make a lot of sense... If the credit is simply extended as-is, then when it reaches expiration again, people will just be hanging on for yet another extension. With a slow phase out, the credit would just "fade away".

Daniel

I like it too. This strategy was very effective in the Hybrid Car incentives during the Bush years. First comers get the whole thing, late comers get less until the money is spent. One of the few things the guy did that made any sense. Lots of people, myself included, have hit hiccups in closing the deal (appraisals, slow processing, delayed communication from the seller, etc.) that will keep them from hitting the mark. Let's ween everyone off slowly. If only we could ween giant corporations off government subsidies as easily we'd all be in better shape.

High CD Rates

I agree, just to avail $8K credit is meaningless. Hope to hear some good report or some amendment.

BS

If they extend it to everyone and If you make 150,000 a year or 300,000 as a couple you shouldnt need or be worried about 8,000 dollars.They would just spend it all in one place like granite counters,or a huge mansion size refrigerator.That to me is a total waste. It would be better if they just extended it and doubled it for first time home buyers People who would otherwise have to use their credit cards to buy house hold items furniture,appliances ect starting off in a new home with credit card debt not good. If you can afford a 300,000-500,000 dollar mortage to trade up then that 8,000 shouldnt be what makes them leap into a new home.Talk about throwing money at the rich. People who make that much money a year dont need any help.Those kind of people arent cutting back on expenses and buying things.Those are the people who dont notice the change in the economy they arent affected by it.

BoiseRealEstateSoup

I like the concept of the phase-out idea for the same reasons that Jay mentioned. Many people in the Boise real estate market are assuming the credit will be extended. Deadlines create urgency and that is what our market needs.

gdallaire

I will be blown away if it doesnt get extended. I'm not a supporter of the tax credit for a variety of different reasons that I'll avoid due to political discussion.

Our country is on the mentaility that we can spend ourself out of a problem. It's not going to happen we are prolonging the true recovery and or crash.

Evan Little

I'd like to see the tax credit not be renewed even though I'm an agent that works with many first time home buyers myself. I don't believe in the federal government or my state government, California, to make a positive impact. The REALTOR(R) and Builders associations can blow all of our membership money on lobbying for ridiculous programs like this to prolong the inevitable a little longer. Let's get down to brass tax here and welcome some reality and begin the painful economic healing process before we're using our "legal" tender to light a fire