Senate Approves $15,000 Tax Credit for Home Buyers

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Update: Thursday Feb 12, 4:58pm – the $15,000 home buyer tax credit is apparently being replaced with an $8,000 credit in the “compromise” version of the bill. For the latest, please see this post, “$8,000 Home Buyers Tax Credit: What We Currently Know“.

UPDATE #1: Feb 5, 11:48am – still gathering intelligence, but this version of Senate amendment clarifies that the former requirement that one must be a first-time home buyer is being repealed. This means this credit would apply to any home buyer. Also, the original repayment provisions are being lifted.

This thing is in flux, stay tuned!

UPDATE #2: Feb 5, 3:15pm – The dates originally reported here, in the mainstream media and in the first copies of the congressional record are apparently incorrect. Here is the amendment straight off the sponsoring Senator’s (Johnny Isakson, R-Ga.) website:

(b) LIMITATIONS.—
(1) DATE OF PURCHASE.—The credit allowed under subsection (a) shall be allowed only with respect to purchases made—
(A) after the date of the enactment of the American Recovery and Reinvestment Tax Act of 2009, and
(B) on or before the date that is 1 year after such date of enactment.

UPDATE #3: Feb 6, 2009 4:10pm – CSPAN reports Senate has reached tentative compromise on Stimulus package. Reporting $780 billion is total compromise. Senate reconvenes at 6:30pm Eastern.

UPDATE #4: Feb 7, 2009 10:39am – Reuters reports that a vote on the Senate version of the Stimulus Bill is slated for Tuesday Feb 10.

UPDATE #5: Feb 9, 2009 4:15pm – The Senate has voted 61 – 36 to advance the “Nelson-Collins” amendment to the Stimulus bill. Essentially, debate is closed and a final vote will be taken tomorrow (Tuesday Feb 10). Passage is expected. Next stop would be a Conference Committee made up of both House and Senate members to hash out differences between the two bills. Here is the text of the version the Senate will likely pass.

—- Original Post —-

The U.S. Senate approved an amendment today to the  American Recovery and Reinvestment Act of 2009 (H.R. 1) that would allow a tax credit of up to $15,000 for the purchase of a qualifying residence.

Previously the bill contained provisions for a tax credit of up to $7,500 for the purchase of a new home. The amendment increase the amount to $15,000 and  includes new as well as re-sale homes.

If the bill passes both the House and Senate, and is signed into law by the President (which is expected, currently. Possibly by the end of the week) then an amount equal to 10% of a home’s purchase price, not to exceed $15,000, could be applied as a tax credit.

The amendment includes the taxpayer’s choice of splitting the credit equally across two years.

Only primary residences purchased in 2009 qualify. (In other words, you have to buy it this year and live in the home – no investment properties qualify.) SEE UPDATE#2 at top of this post. The beginning effective date is the date of enactment of the legislation.

Personally, I find it difficult to read and interpret House and Senate Bills. The current version of the American Recovery and Reinvestment Act of 2009 weighs in at 680 pages of legal speak. You can read it in all its glory here.

And here is a PDF of the amendment only. Good luck figuring it out without following all the cross references – an exercise certain to induce a world class headache.

I thought the original incarnation of the tax credit only applied to first time home buyers. Apparently this amendment applies to any home buyer. From the initial AP teaser:

The Senate has voted to award anybody buying a home this year a tax credit worth up to $15,000 in hopes of jump-starting the sagging housing market. The homebuyer tax credit offered by GOP Sen. Johnny Isakson would apply to any home purchased as a main residence and would cost taxpayers $19 billion. (my emphasis)

The amendment references section 1400C of the IRS Code, which does pertain to first-time buyers in Washington D.C., but I can’t find any other reference to first-time buyers in the amendment. The full AP article released a couple of hours ago refers to “homebuyers”, not “First time homebuyers” so it’s probably safe to say this amendment applies to all buyers.

My interpretation of this amendment also shows that the tax credit only has to be repaid if within 24 months of purchase, the home is sold or if the taxpayer fails to occupy the home as their principal residence.

As always, I am not a lawyer, a CPA nor a tax expert. If this credit is of interest to you (assuming it becomes law) you would be well advised to consult a tax professional prior to purchasing a home. If you buy a home in 2009, certainly you don’t want to leave a credit of this magnitude sitting on the table.

Will this help stimulate the housing market? Who knows. Clearly it may get someone off the fence. A $15,000 tax credit is a nice little chunk of change. Of course since it’s a tax credit, it is claimed when you file so it’s not like you can apply this to a down payment or closing costs. None the less, 15 grand is 15 grand and surely it will motivate some people to buy. My current opinion (subject to change) is that it will help, but not fix everything wrong with the real estate market.

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About the Author
Jay Thompson

I'm a real estate broker in Phoenix, Arizona and the publisher of the Phoenix Real Estate Guy blog. I tend to drive too fast and scream at the University of Texas and Denver Broncos football teams. My two kids are smarter than most adults I know and my wife is simply amazing.

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  1. Well, it is a start. Now if we could get some of the fear out of the would be home buyers out there.

    **James Boyer´s last blog post..Morristown NJ Condo For Sale / Morristown NJ Real Estate / MLS#: 2642026</abbr></abbr>

  2. Thanks for getting this out there.

    I like this part:

    "My current opinion (subject to change) is that it will help, but not fix everything wrong with the real estate market."

    I agree with the general "it won't fix everything, but it can't hurt" opinion.

    **Justin McHood´s last blog post..Arizona Reverse Mortgages: Can You Get A Reverse Mortgage That Isn’t An FHA HECM Reverse Mortgage?</abbr></abbr>

  3. Jay,

    I was told by a client who's in the banking industry that, as a part of the new bill, 4% mortgages will be offered.

    Can you say "can't twitter now because I'm refinancing my house?"

  4. jmac says:

    Jay…………..if it becomes law…………it will make a big difference….i am not an accountant either………….but i do know that there are accountants that have mentioned you could take that 15000 and divide it by the number of weeks left in the year and alter your with holding to have access to the money now……it is more help than anything else.

  5. On the $7,500 "credit" it works like this:

    Let’s say you bought a home last year. So when filing your taxes for 2008 you could take a "credit" for this year’s taxes. However it's not a real credit because it has to be paid back over 15 years….So you get the $7500 which helps "today" but then you pay it all back. (without interest over the next 15 years netting you essentially nothing!) If this is cut from the same cloth then it’s just a way for someone to defer a years worth of taxes (at least 15k worth) and add 1k a year on top of the tax burden for the next 15 years.

    See #16:
    http://www.federalhousingtaxcredit.com/faq.php

  6. dvine says:

    Missed this news, but sounds like its going to be beneficial to many who acted fast.

  7. @Michael – this appears to be different (or is amending) the existing $7500 credit. At least as best I can tell. Everything I've read show the only payback is if, as mentioned in the post, within 24 months you dispose of the home or it is no longer a primary residence. I'm still trying to make sense of conflicting news accounts.

    @jmac – that accounting "trick" sounds like a reasonable plan. Assuming of course, you have withholding. Not all of us do ;)

  8. Sarah says:

    The housing crisis really needs to be solved by re-instating seller assisted financing. This would allow first time buyers to have the money needed to provide a down payment on a home.

    **Sarah´s last blog post..Free Grocery Food</abbr></abbr>

  9. It would be nice if legislation was written in plain English (or American) so that everything was understandable by ordinary citizens. But I do think this is a pure tax credit, not requiring payback unless selling within 2 years and it should help stimulate demand. After all, as Jay said, 15k is a nice chunk of change.

    **howard´s last blog post..Mr. and Mrs. Seller, would you like me to show your home</abbr></abbr>

  10. Johnny Isakson started a real estate company in the Atlanta area that he ran for well over 20 years. Lately, he has been very vocal about the need to clean up the existing forclosure inventory in order to stabilize the housing market. I'm not completely familiar with this bill yet, but a $15,000 tax credit on top of already low housing prices sounds good.

    **Tina Fountain´s last blog post..1513 Jones Road – Roswell Luxury Home</abbr></abbr>

  11. I would agree with "it won't fix everything" but it can't hurt either, so I guess it is worth a try. We will soon find out!

    **Meg Zoller-Houston Realtor´s last blog post..Houston Real Estate Reaps Benefits of Statewide Population Growth</abbr></abbr>

  12. I think your final assertion hit the nail on the head:

    "My current opinion (subject to change) is that it will help, but not fix everything wrong with the real estate market."

    These incentives are not going to get everyone to move but let's face it – if you can qualify for a loan (still a big IF for many), rates are cheap, prices in many locales are now incredibly cheap (some instances lower than when the boom started), and add a healthy 15k tax break to the mixer …. I'm not quite sure (if you're in a financially stable position) what more you could be waiting for outside of someone just giving their house to you.

    I think too many people miss the point that it is oftentimes MUCH BETTER to buy (within reason) before the bottom because there is generally less competition and huge levels of inventory still remaining. Both of which, ultimately enables you to be in a much stronger position to negotiate a great deal.

    With all of the incentives on the table with undoubtedly more coming, there will be a time when everyone hops off the fence at the same time (you know, the predictable herd mentality). The prices may be on the bottom, but everyone will know it and you might find yourself back in the good ole bidding wars.

    In my local area (30 miles East of San Francisco) banks are dumping homes aggressively on the market. One such house had 25 offers after one day on the market. The offer I am familiar with was submitted for 5ok over the asking. Good luck! It's not a big surprise there is some pent-up demand, since our market has been dropping since July / August of 2005.

    In locales like Phoenix, we may not be on the bottom yet, but I'm hard pressed to believe that we are going to continue to see the substantial price drops at the rate in which they have fallen over the past 1 1/2 years especially with incentives like this likely to come down the pipe.

    **Property Qwest´s last blog post..Mortgage Applications Move Higher</abbr></abbr>

  13. Good info! Let us know how things work out.

    **miami real estate´s last blog post..Selling Florida Real Estate</abbr></abbr>

  14. I think this will definitely help in getting people to buy homes. However, why don't they do something to try and help people that are in the hole on their current home? I think a lot more people would be buying homes right now if they could get out from under the ones they already have. I'd gladly sell my home for market value and not make anything on it just so I could take advantage of the great prices out there on larger homes.

  15. Gregory Bain says:

    Smoke and Mirrors! We were promised change and this is just more of the same. Next, BILL will be an offer to privatize social security. That is what Wall Street really wants and it would help all of the politicians' friends further destroy our country, but it ain't going to be of any help for the rest of us.

    Until wages catch up to the cost of housing there is not going to be a significant change in the housing market. (IMHO)

  16. If they do make this a real tax credit for 15k it will boom the market. Buyer's will have little choice "not to buy “especially when they will see homes start selling quickly again. What else could a buyer on the fence expect? Low 5% rates, 2002 prices (at least in Tucson), desperate sellers, oh and up to $15,000 off your tax bill just for stepping up to the plate. This will work for sure (in my mind). Let's see what happens however this is exactly what I think is needed, it's almost like hitting a "small jackpot" just to buy a home.

  17. This is exciting news indeed. First time home buyer or no, I think it's time to nudge my oldest kids to buy their first investment property to live in. :)

    Something like this my get the housing market headed back in the right direction.

    **Colleen´s last blog post..I Love Jesus But I Drink A Little</abbr></abbr>

  18. As a Realtor and tax payer, I think this is horrible legislation:

    #1. It will not help a home buyer qualify for a home.

    #2. This 'relief' is only directed to a tiny portion of home buyers: those buying this year. What about everyone else?

    #3. I firmly believe this will not spur any new home buying.

    #4. It would help run up the deficit by giving out checks to a select few.

    Money is so cheap right now, I strongly believe that 4% mortgages would definitely spur demand. In addition to this, I would like to see the government find a way to couple this with a re-finance program so that underwater/distress homeowners could qualify somehow.

    **Bruce Lemieux´s last blog post..The Montgomery County Agricultural Reserve hits a milestone</abbr></abbr>

  19. @Bruce – I'm no fan of the government stepping into and trying to influence market behavior (be that real estate markets, stock markets or whatever) but a little motivation may help those buyers who are "on the fence". And clearly, at least in the Phoenix real estate market, there are a lot of buyers on the fence.

    I've read a lot on this between last night and today. No. it won't help everyone. But I can see how it may influence current potential buyers to pull the trigger. Is that fair? Probably not, but life's not fair. I've seen people complain along the lines of "But I bought a home in December! What about me?" Well, they have to draw a line somewhere and there will be people on the other side of that line no matter where they draw it.

    A re-fi program, while I would personally love that, isn't going to stimulate the housing market. We need to bleed off this excess inventory — we need buyers. (Though one could make the argument that a re-fi with reduction in principle would put cash in people's pockets, which would stimulate the economy as a whole).

    Will it fix everything? Absolutely not. Will it increase the potential buyer pool? I think so.

  20. Hi Jay – Thanks for the dialog. We have a lot of buyers on the fence here outside of D.C. as well. Fear and Affordability are the two enemies. I don't know the best answer to keep people in their homes, but I would like to see something meaningful that helps stop (or at least slows down) the flow of distress sales into inventory. As long as this continues, values will continue to be pulled down and buyer confidence will continue to be dragged down with it. Buyers really need *confidence* to buy right now. My buyers watch interest rates continuously. Lower rates makes homes more affordable *and* it helps people qualify for homes. I believe this would effectively spur demand. And, if 'regular' home owners can refinance at 4%, then that's more money available to spend, save etc. to a *huge* pool of people. Would a $15K credit hurt? No. But as a tax payer, I don't want to give such a big check to such a select few. I don't think it's enough to address the Fear and Affordability that consumes our market.

    **Bruce Lemieux´s last blog post..The Montgomery County Agricultural Reserve hits a milestone</abbr></abbr>

  21. Excellent points Bruce – can't really find any fault in that logic to argue with!

  22. Good job, you beat me to it I am half way done with my write-up… there is no beating Jay is there

    **Dean Ouellette´s last blog post..7 simple appraisal tips to save you time and money</abbr></abbr>

  23. Welson says:

    According to Senator Isakson's website: http://isakson.senate.gov/Amdt_106.pdf, the qualifying purchase date has to be AFTER THE ENACTMENT OF THE STIMULUS BILL. I called Senator Isakson's office to confirm this. When I refer to http://frwebgate.access.gpo.gov/cgi-bin/getpage.c… for Jan 1,2009 – Dec 31, 2009 purchase date, the Ms over the phone told me that is wrong.

  24. Rich says:

    This plan only has a positive effect if you believe that dropping house prices are only the result of buyer psychology. I believe that past declines as well as significant continued future drops are a perfectly rational response to current economic conditions.

    No doubt this program will stimulate a lot of demand. Indeed the mad rush to beat the deadline in late 2009 could soak up a lot of the inventory and even lead to temporarily rising prices. But it just delays the inevitable. In Jan 2010 the bottom drops out of demand, prices almost immediately drop $15K, they resume their slide from there and the duration of the housing downturn is extended. Just like during the boom, sales in 2009 will largely cannibalize future sales and 2010 will be an abysmal year for the housing market.

    An additional unintended but foreseeable consequence, the lure of free money will cause thousands of families to overextend themselves at a time when they should be taking on less financial risk. I predict the foreclosure rate among those taking advantage of this program will be quite high.

    Ultimately a healthy housing market requires stable incomes and prices in line with that income.

  25. Missy Caulk says:

    In the Hope for Homeowners bill only 25 have closed, out of the 400,000 they thought would apply only 415 did. It was given to help refinace into gov't backed loans. It failed for many reasons as I posted today but mainly because of the requirements and the pay back.

    If you have been reading all day, is this up to 15K required to be paid back?

    **Missy Caulk´s last blog post..Hope for Ann Arbor Homeowners?</abbr></abbr>

  26. John Wake says:

    Jay, I think if this is enacted as an honest to gawd tax credit (not a tax "deferral" like the previous $7,500 program) then the housing market bottom for metro Phoenix as a whole will be this year for sure.

    The program, since it is for 2009 only, will add a ton of urgency to the market. Right now many potential buyers in many areas of the Valley like the housing prices – affordability is good – but there is no urgency to buy when prices are falling.

    A temporary program like this could move the needle a bit away from fear and toward greed.

    And politically, being against this program is like being against low interest rates in 2005… Who's going to say "no" even if it does have bad long term ramifications.

    (I still don't expect all areas of metro Phoenix to bottom out this year even with this program.)

    **John Wake´s last blog post..Senate OKs $15,000 tax break for homebuyers</abbr></abbr>

  27. matha says:

    has this been confirmed? If yes then i will be save from lot of trouble. I hope this happens pretty soon. Please keep us updated on the issue.

  28. voip says:

    i deff agree that it will not fix everything but it cant hurt. Great blog

  29. Jim Gatos says:

    Instead of blogging about this topic, I just took everyone from my email list that I thought would need to read this and simply sent them a link to this article here. Jay, you're a genius. Thanks!

    **Jim Gatos´s last blog post..My new business card …</abbr></abbr>

  30. Pedro says:

    I spoke with my CPA's assistant yesterday and she was under the impression that you would only get a refund based on your tax liability. She was basing it off of the previous bill for the $7500 tax credit that had to be repaid though. Anyone know if this new bill has the same stipulation? It makes sense that it would be limited to your tax liability, but for me, it would be nice if it wasn't.

  31. Pedro – in its current state, the credit is limited to your tax liability.

    In other words, if you owe $10,000 in taxes, you would not be allowed to get the $15,000 credit (and have a refund of $5,000)

    BUT, there is a provision to allow the taxpayer to spread the credit out equally over two years.

    So in the example above, assume your total tax liability in 2009 is $10,000. You qualify for the full $15,000 credit. You could take a $7,500 credit in 2009, and another $7,500 credit in 2010 (as long as you had a 2010 tax liability of at least $7,500).

    It should be noted though that the bill has not yet passed both Congress and the Senate. Until it does and gets delivered to the President for signature, anything could change.

  32. This is a step in the right direction. As stated before, I do believe that this will help alleviate the fears associated with buying a house.

  33. This is a step in the right direction. As stated before, I do believe that this will help alleviate the fears associated with buying a house.

    **Mike´s last blog post..Workers’ Compensation Law – Do I Have a Case?</abbr></abbr>

  34. VA Home Loan says:

    "The homebuyer tax credit offered by GOP Sen. Johnny Isakson would apply to any home purchased as a main residence and would cost taxpayers $19 billion."

    You know I think it's funny they say it will cost taxpayers $19 billion. I don't think it costs tax payers anything. It would save taxpayers $19 billion from taxes. I am glad they have raised the limit to $15,000 and that it is extended to all home buyers but it bothers me that they use the money as if it is theirs. The money is the tax payers and it's a savings to the tax payers and not an expense. In my mind that's $19 billion less big government has to play around with.

  35. Nice research and following… I agree with a few of the comments above. This will be a benefit to those already planning on purchasing. The majority of people who will be purchasing this spring/summer already have their minds made up and will do so regardless. It will be a nice bonus to them for doing what they're already qualified and planning to do. It does nothing to help those who would ideally like to purchase but are a tad short with their down payment requirements etc. Or for those stuck in a nasty ARM and looking to at least get caught up, sell or refinance. I don't see a huge value in this $19 billion project, but we'll see…

    **Cecilia – Ohio Real Estate – Howard Hanna´s last blog post..Northeast Ohio Real Estate Market Statistics</abbr></abbr>

  36. Congratulations Jay!

    http://ktar.com/?nid=6&sid=1039680

    You think they'd at least give you some link love though… argh.

    **Matt´s last blog post..Paradise Valley Sales Report – January 2009</abbr></abbr>

  37. tyler says:

    JAY – just FYI – BOTH the house bill that passed and the current senate version wave the repayment requirement on the $7,500 first time homebuyers credit for houses purchased after December 31, 2008 and before July 1, 2009 (in the house version) or September 1, 2009 (in the Senate version). See subtitle D of the amendments in HR 1….

  38. bill says:

    I will be claiming this credit. My wife and I were getting a house this year anyway, so it didn't change our minds. However, I told a friend of mine, and he said that if they pass this bill, he is definitely getting a house this year!! I totally agree that it would get people off the fence. How can you pass up a free 15k, with no re-payment clause?

  39. Anonymous says:

    GOOD INFO:

    First: BOTH the Senate and House versions of the bill as they currently exsist include waiving the need to repay the $7,500 current first time home buyers credit for purchases in 2009 (not for homes purchased in 2008). Certainly this could change before the final version passes, as the 15,000 Amendment in the Senate version may be intended to remove this section of the bill completely – however as it currently stands, there is a proposal to waive the need to repay the $7,500 loan for homes purchased by first time home buyers in 2009.

    Second: The ORIGINAL 15,000 package had it retroactive for all of 2009. The ACCEPTED version changed this to the date it is signed into law. So as it currently stands, the 15,000 will go into effect once President Obama signs the current stimulus package. Again – this can all change once the bill goes back to the house to reconcile the changes that the senate made to the bill. The term “sunset” means that the $7,500 offer will be off the table once the current package is passed. The reason the senate did this was because they a) didn’t want people “double dipping” meaning that they would take the $7,500 AND $15,000 because the current credit law has it expiring on July 1, 2009. They did not want there to be overlap between the two credits…

    Third: The current $7,500 first time homebuyers credit (loan) is REFUNDABLE – meaning that even if you owe $0 in taxes, you can still get the $7,500 and pay it back over the next 15 years. The current legistlation does nothing to change this – so if the legistlation becomes a law as it currently stands, you could take $7,500 and have it free and clear, no matter what you owe for taxes.

    Fourth: the $15,000 credit is NON-REFUNDABLE meaning that not only is there a limit based on the cost of your home, there is also a limit based on how much you owe in taxes. If you don’t pay taxes, you don’t get the credit. Keep in mind, we’re not talking about what kind of refund you normally get, we’re talking what you owe for the year in taxes – INCLUDING what gets taken out of your paycheck each month in federal witholdings. So even if you don’t get a refund, most working americans who have federal withholding will benefit greatly. You CAN take the $15,000 credit over two years – but it cannot be more than what you paid in taxes. So those who are currently purchasing a home, you will win either way – you’ll get $7,500 free and clear, OR you’ll not have to pay taxes for two years (assuming you tax liability is under $7,500). So no stresses, UNLESS things change (which they certainly could).

  40. Anonymous says:

    And you also have to put at least 5% down.

  41. tyler says:

    i haven't seen the 5% down requirement – where did you come up with that?

  42. tyler says:

    PS – anonymous – thanks for reposting something i wrote on another website….

  43. Tyler – that came from an amendment proposed to Isakson's amendment. As best I can tell, it was not adopted. But, it shows what might happen as this thing winds its way through the process.

    It doesn't surprise me that some down payment requirement has been considered as zero down loans are partly what got us into this mess. That being said, there aren't many zero down loans being done these days so the point may be moot.

    However, if there is a down payment requirement in the final version, I would hope that it wouldn't be 5%, but 3.5% as that's what many FHA loans are. It would be a shame to exclude people using that product. Some VA loans can be written with zero down. If they have a down payment option, I hope they consider FHA and VA loans — maybe by including language that DP limits apply only to conventional loans? (and thereby just adding to the growing confusion.)

  44. Anonymous -

    I appreciate your adding to the conversation, but common courtesy would dictate that if you are going to copy another persons words verbatim that you give them credit for it.

    Tyler wrote what you copied above at: http://www.fivecentnickel.com/2009/02/04/15000-ho

  45. Great Post

  46. I will be waiting to see what version of the bill makes it to vote on Tuesday AND what ends up being signed by the President. It will be exciting to see if this does indeed help qulified buyers start buying

    **Linda Craft-Raleigh Real Estate´s last blog post..Staging Your House to Sell</abbr></abbr>

  47. tyler says:

    It will certainly be excited to see where this all goes – for me, I am making the assumption that I will be getting the $7,500 tax credit as a loan since our escrow closes this upcoming week. If I get anything above that – it's the frosting on the cake…

    it reminds of the bible story (sorry if this offends anyone) of the guy who asked someone in the morning to work in his field for a denarus – then an hour later, he asked someone else to work in his field for a denarus, then an hour later he did the same thing. Finally, at the end of the day, he paid everyone a denarus – and the people who came to work early said "why are we getting paid the same as those who only worked an hour? That isn't fair" and the owner of the field said – how did i wrong you? Didn't you agree to work for me for a denarus? I paid you what I told you I would – don't I have the right to pay people whatever I'd like?

    Ok – so the story above is a paraphrase – but you get the idea- if you purchase your home today, and with all the knowledge you have- if things change tomorrow, how does that TRULY impact you? You made the agreement – you knew things could change – that's the nature of the game.

    Just my 2 cents

  48. Tim says:

    Thank you for this wonderful post. I am not tax savvy at all, if you folks could help me understand the proposed tax credit to my own situation, I would greatly appreciate it.

    We close escrow in mid-March of '09. We seem to just be lucky people who are going to buy our first home in a crazy real estate market.

    We always get money back on our tax return. The way I had understood the original $7500 tax credit is that a check would be cut to you with your return. Maybe I got that wrong.

    One of the above posts seems to imply that there is no check issued. How do we best take advantage of this credit if it does indeed get signed into law? Should we change our withholding so less is taken out?

    Thank you.

  49. tyler says:

    Tim – right now everything is speculative – the current situation – IF the stimulus package does NOT get passed would be that you would indeed qualify for a $7,500 additional tax credit on top of your normal refund. You would have to pay back the $7,500 starting in two years at $500 every year on your taxes, meaning you would get less of a refund. This is how the current law stands.

    In the proposed stimulus package, there are two factors –

    First – the house made the $7,500 free and clear, meaning they waived the requirement to pay it back. They only did this for people purchasing in 2009, and they had until July 1, 2009 in order to claim the $7,500.

    Second – when the house passed this to the senate, the senate initially changed the date from July 1, 2009 to September 1, 2009. It would still allow for first time homebuyers to claim the $7,500, and not have to pay it back.

    Third – A senator from Georgia proposed a new amendment, which would provide a $15,000 NON-refundable tax credit for ALL homebuyers – starting from the day the stimulus package gets signed into law. This non-refundable tax credit means you can only get back what you paid or owe to the IRS, nothing more. For example, when I do my taxes, I learn that my tax liability is $3,500 for 2008, but the IRS took $4,500 out of my paycheck, so I normally get $1,000 refund. With this new credit, if I qualified for it, would mean that I would owe $0 in taxes for 2008, and I would get back all $4,500 that was taken out of my paycheck. I would also get back any money in 2009 that was taken out of my paycheck, up to $11,500 ($15,000 – $3,500 from 2008). Now – I could decide to change my withholdings so that i get no money taken out of my paycheck each month, which would put more money in my pocket each month – and then after 2009, I could change my withholding back to what it is today. OR – I could decide to just continue paying the IRS, and then when I do my taxes for 2009, I would get everything back.

    Again – the stimulus bill is that – it is just a bill – it is not a law. Until this gets signed into law – everyone is just speculating. Given that you are planning to close in MArch, you probably won't have much to worry about, unless things drastically change. As it stands right now, assuming your house is $150,000, and your tax liability (NOT what was taken out of your paycheck for 2008, but what you actually owed the government in 2008) is below $15,000, you'll get all your money back.

    Hope this helps to clarify

  50. tj says:

    Hello all,
    Great postings thanks.
    I have a question concerning my situation and the original qualifying dates. I bought my house the end of february but was unable to live in it due to renovations so we rented until mid april. I know I am not lucky enough to get free money but I would like to get the 7,500 loan. what is the interprepation of this situation would a renovated unlivable house fall in the same category as constructed therefor allowing me to apply the occupency date which is within the allowed dates. Thanks

  51. shawn says:

    My wife and i bought a new house in AUG 2008 but we could not get the $7500 credit . My wife currently owns a home so we dont qualify is there any relief in the new bill for us? Just because my wife owns a home we dont qualify even though we bought a new one together.

    any help would be appreciated thanks.

  52. Shawn – my understanding is the new $15,000 credit will be effective on the date it is enacted — which hasn't happened yet. And as it stands right now, it is NOT retroactive. Now it's possible the language could change before the final version is signed into law, but I've yet to see any talk about making the 15K credit retroactive.

    So, since you bought in Aug 2008, you'd fall under the existing $7500 "credit", which it sounds like you are not eligible for.

    All that said, I'm not a tax professional and would suggest you contact one for a definitive ruling.

  53. tyler says:

    Jay – thanks for asking – we did our final walkthrough, and they were supposed to fix the heater, and it wasn't fixed – so they need to still do the repairs – we are in limbo, but hoping to close soon – within the week – all we are waiting for now is the final heather fix…

  54. tyler says:

    it also looks like the final version the senate is going to pass eliminates the "waiver of repayment" of the original $7,500 tax credit – so it looks like i will be getting a $7,500 interest free loan unless this heater thing drags out…

  55. Tyler – did you close on your home? I’d also like to take a moment to “publicly” thank you for all your contributions to these threads!

  56. CHRIS IN FL says:

    COPY AND EDIT THIS LETTER, SEND IT TO THE STIMULUS CONFERENCE COMMITTEE (MAKE IT UNIQUE TO YOU).

    Dear Senator :

    I write today to thank Congress for its hard work on a much needed stimulus package and to express my concern about the $15,000 tax credit for home buyers.

    Last week, Senator Isakson’s amendment to the stimulus replaced a $7,500 refundable tax credit with a $15,000 non-refundable one. The amendment is designed to encourage home purchases by higher-income households with a reduced risk of default. What the amendment fails to do is encourage purchases by those of us who are responsible and credit-worthy, but whose tax liability is nowhere near $15,000. Even the provision that allows tax payers to spread the credit evenly between two years is insufficient, as many of us have liabilities that are still only half the allowable credit. To make this incentive truly work for the American people and the American economy, the $15,000 credit must be made fully refundable to credit-worthy homebuyers at or above a certain income level.

    In my own case, I work in the education field, which is not well known for its high salaries. Despite this, I have waited and saved been frugal with my spending for some years so I might purchase a home. In March, I will close on a foreclosed property in my hometown. My new home will need much work, as many foreclosures do. In most cases, the purchase of a home is the largest investment an individual will make in his or her lifetime. The spending that goes with it – spending for furnishings, improvements, renovations, maintenance, and appliances – infuses the economy with thousands of dollars per home.

    Passage of the current bill will reduce my tax refund by $3,500 over the current incentive. That doesn’t make me excited to go out and spend. I could only dream of making enough money to recoup the entire credit in this bill, but what does it say to give a full $15,000 refund to someone making $122,000 a year, but less than a third of that amount to someone like me? Does that individual need the money more? Will they actually spend much of their refund? Is it sending the right message to the true middle class? I’m not sure I can answer those questions, but I know that if Congress gave $15,000 to an individual making $45,000 a year, they would put it to good use!

    By making the $15,000 credit fully refundable would allow me and others like me to stimulate the economy with purchases of furniture, equipment, hardware, and create jobs in areas like maintenance, pest control, landscaping, construction, plumbing, and contracting. In my home alone, there is a laundry list of improvements that need to be made, totaling nearly $17,000. By refunding Senator Isakson’s tax credit, the entire amount would be circulated into the economy. Without it, me and homebuyers like me will likely stash what little we qualify for away.

    Many see this credit as a windfall for undeserving or wealthy homebuyers. Currently, it is. By refunding the entire portion, it really becomes a windfall for the sectors of our economy that need it most. Help us to improve our lives while improving the economy by making the $15,000 homebuyer’s tax credit refundable.

    Thank you for your consideration,

  57. Chris says:

    FOR THOSE WHO BOUGHT IN JANUARY:

    THE HOUSE PASSED THE BILL FOR A $7500 TAX CREDIT THAT DOESN'T NEED TO BE REPAID AND IS AFFECTIVE FOR PURCHASES OF HOMES AFTER 01/01/09.

    THE SENATE CHANGED IT TO A $15,000 TAX CREDIT BUT IT IS ONLY AFFECTIVE FOR PEOPLE WHO PURCHASES AFTER IT'S SIGNED.

    IF THE SENATE PASSES THERE'S TODAY, THEN THERE WILL BE A MEETING BETWEEN MEMBERS OF THE SENATE AND MEMBERS OF THE HOUSE TO WORK OUT THE DIFFERENCES BETWEEN THE 2 BILLS.

    I BOUGHT IN JANUARY SO I OBVIOUSLY WANT THE $15,000 TAX CREDIT THE SENATE PROPOSED BUT WITH THE START DATE THE HOUSE PROPOSED.

    YOU NEED TO MAKE YOUR VOICE HEARD AND CONTACT YOUR SENATORS AND HOUSE REPRESENTATIVE. THIS IS AMERICA SO YOUR VOICE IS YOUR POWER. E-MAIL THEM OR CALL THEM. HERE IS A CONVENIENT NUMBER. CALL AND ENTER YOU ZIP CODE AND IT WILL GET YOU IN CONTACT WITH ALL OF YOUR CONGRESSMEN. DECISIONS ARE BEING MADE, DO IT TODAY. 1-866-924-NAHB (6242)

  58. WOW – thanks for all the translations on this! I have a couple anxious to close on their new home and we are ready to go, but waiting for the effective date on this one. Right now our close date is 2/17 or sooner. They want to be in their new house sooner of course, but I am asking them to wait to see when this one takes effect. It is $15,000!!!!!

    Thanks so much for following it through!

  59. Tyler wrote: "it also looks like the final version the senate is going to pass eliminates the “waiver of repayment” of the original $7,500 tax credit – so it looks like i will be getting a $7,500 interest free loan unless this heater thing drags out…"

    Tyler – this is in a Wall St Journal article dated today:

    The current legislation waives the need to pay back a $7,500 credit on properties purchased by first-time buyers between Jan. 1 and the end of August.

    I'm still trying to find the final Senate bill, believe it or not, there is conflicting info out there on the big bad internet… ;)

  60. Even if you can find the final senate bill, it will need to go back to the house for reconciliation because the house and senate bills are different. But my gut is that the senate bill won't change much.

    Jay, thanks for all the info and updates. This is a great crash course, and I will pass it along to some of my buyers.

  61. Chris Skaling says:

    I just wanted to right in and praise Tyler. I have been searching all over the net for 6 hours straight trying to understand this new bill, and this was by far the clearest explanation i have read.

    I am a very young professional making a little over 60K

    I am not married

    I have no kids

    I dont have a home (yet… ;)

    So i get TAXED. HARD.

    A single guy, buying a house/condo on his own is very hard, even with making 60k. This tax bill is such a blessing if i understand it right, which tyler got me on the right track too.

    So if i am understanding this right…..

    Say i am going to buy a house May 09

    I could change my withholdings RIGHT NOW, to effectively ZERO out any Fed income Tax taken out of my check. Thats 400 every paycheck!!!!

    So one year i pay about 10,000 in fed income tax, leaving 5 grand left over i need to take advantage of.

    From what i am understanding is, i can spread this over to my 2010 tax year, up to the 5,000.

    So in the end, i would end up getting an extra 400 on my paychecks for about a year and half?

    Am i understanding that right?

    Here is Tylers great post below.

    THANKS AGAIN!

    "tyler 02.08.09 at 4:49 pm

    Tim – right now everything is speculative – the current situation – IF the stimulus package does NOT get passed would be that you would indeed qualify for a $7,500 additional tax credit on top of your normal refund. You would have to pay back the $7,500 starting in two years at $500 every year on your taxes, meaning you would get less of a refund. This is how the current law stands.

    In the proposed stimulus package, there are two factors -

    First – the house made the $7,500 free and clear, meaning they waived the requirement to pay it back. They only did this for people purchasing in 2009, and they had until July 1, 2009 in order to claim the $7,500.

    Second – when the house passed this to the senate, the senate initially changed the date from July 1, 2009 to September 1, 2009. It would still allow for first time homebuyers to claim the $7,500, and not have to pay it back.

    Third – A senator from Georgia proposed a new amendment, which would provide a $15,000 NON-refundable tax credit for ALL homebuyers – starting from the day the stimulus package gets signed into law. This non-refundable tax credit means you can only get back what you paid or owe to the IRS, nothing more. For example, when I do my taxes, I learn that my tax liability is $3,500 for 2008, but the IRS took $4,500 out of my paycheck, so I normally get $1,000 refund. With this new credit, if I qualified for it, would mean that I would owe $0 in taxes for 2008, and I would get back all $4,500 that was taken out of my paycheck. I would also get back any money in 2009 that was taken out of my paycheck, up to $11,500 ($15,000 – $3,500 from 2008). Now – I could decide to change my withholdings so that i get no money taken out of my paycheck each month, which would put more money in my pocket each month – and then after 2009, I could change my withholding back to what it is today. OR – I could decide to just continue paying the IRS, and then when I do my taxes for 2009, I would get everything back.

    Again – the stimulus bill is that – it is just a bill – it is not a law. Until this gets signed into law – everyone is just speculating. Given that you are planning to close in MArch, you probably won’t have much to worry about, unless things drastically change. As it stands right now, assuming your house is $150,000, and your tax liability (NOT what was taken out of your paycheck for 2008, but what you actually owed the government in 2008) is below $15,000, you’ll get all your money back.

    Hope this helps to clarify"

  62. Chris – Agreed, Tyler has been a huge help. He's right smack in the middle of closing on a home and has really done his research!

    You've *almost* nailed it. One thing, and it's pretty subtle, but can make a big difference.

    The current language in the bill says this:

    AMOUNT.—At the election of the taxpayer, the amount of the credit may be equally divided among the 2 taxable years beginning with the taxable year in which the purchase of the principal residence is made.

    (my emphasis in bold)

    I think the key words in there for you are EQUALLY DIVIDED.

    In your example, zero'ing your withholding and taking $10K of the credit in 2009 and $5K in 2010 wouldn't work (as $10K and $5K aren't equal).

    To maximize your $15K tax credit, you'd want to take $7.5K credit in 2009, and $7.5K in 2010. You'd still have to have a little withheld from your checks, but not nearly as much as you do now.

    A CPA/tax guy should be able to help you figure out very closely what you'd need to do to lower your withholding the right amount. You don't want to under-withhold as our pals at the IRS can fine you for that.

    But you sure don't want to take 10K this year and lose that other 5K because of the (silly in my opinion) current rule that it has to be equally divided.

    I think a LOT of people are going to screw that part up. Maybe that's part of Washington's plan…. ;)

    And of course, none of it's final yet and who knows what could change. I suspect the tax preparers will be up to speed very quickly once the final bill is signed by the President.

  63. Mike says:

    I did not read the actual bill, but the associated press, via yahoo is reporting the following regarding the final version of the bill:

    "A $15,000 tax credit for anybody buying a home over the next year was dropped; instead, first-time homebuyers could claim an $8,000 credit for homes bought by the end of August."

    Someone with a legal background can fact-check if they wish; I just thought some here would like to read the link:
    http://news.yahoo.com/s/ap/20090212/ap_on_go_co/c

  64. You had such fantastic coverage of this whole bill/stimulis transformation; I will be checking back for the latest news! Thanks for gathering this all together for us.

    **MaryAnn Knell-Peoria Real Estate´s last blog post..10 Steps to Achieving the American Dream of Home Ownership!</abbr></abbr>

  65. tyler says:

    JAy – I found this – it's pretty official looking:

    http://appropriations.house.gov/pdf/Recovery_Bill

    see page 24 – this is the updated version…pretty clear:

    For all homes purchased by NEW homebuyers between January 1, 2009 and December 1, 2009: $8,000 refundable tax credit – no need to repay as long as you live in the house for 3 years.

    It pretty much takes the current law and amends it – this is good news for our family…

    But remember folks – until this gets passed by the house and senate AND signed by President Obama – it is not official. It is as close to official you can get – but not law…

    Glad to help people – it was more out of necessity because of the situation we're in – we get our keys tomorrow!!! Then the fun begins! That $8,000 will go towards getting energy efficient windows, which then it looks like (i am not 100% positive because i haven't done the extensive research on it like I have the homebuyers credit) I could get another $1,500 tax break for those energy efficient windows…

  66. Using the tax credit to help make your home more energy efficient seems like a really great idea-esp if you are able to then qualifiy for another tax credit!

  67. That you so much for the great forum, excellent info here!

  68. The government should really take action about this tax stimulation, I had learn a lot from this site about the certain issue.

  69. The government should really take action about this tax stimulation, I had learn a lot from this site about the certain issue.

  70. The government should really take action about this tax stimulation, I had learn a lot from this site about the certain issue.

  71. The government should really take action about this tax stimulation, I had learn a lot from this site about the certain issue.

  72. I really wish this senate $15k version passed – the response from the CARS program was just amazing. I think if they upped the current $8k to $15k next year we could see a similar response for housing. Rapid sales and depleted inventory. Problem solved.

  73. I really wish this senate $15k version passed – the response from the CARS program was just amazing. I think if they upped the current $8k to $15k next year we could see a similar response for housing. Rapid sales and depleted inventory. Problem solved.

  74. The market can definetely use the assistance of the add'l credit that was just added. But we need to do something that will keep people in their homes and avoid foreclosure. That's the only way we can correct the housing mess.

  75. @ Gainesville they didnt up the $8k to $15k, $15k was the original tax credit however after some number crunching it was reduced to $8k it has been sinced extended because a lot of people were struggling to get the house through by the deadline!

  76. Sam House says:

    This is and has been a great incentive; yet it does not appear to capitalize on market growth. Rather it is a mild stimulus, that has now become an expectation for property buyers.

Trackbacks

  1. [...] Thompson is doing a great job of covering the pending legislation regarding the $15,000 tax credit for people who buy a home in 2009. Will it pass? I think it will in some form. Will it [...]

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  3. [...] Lucky for you (and me!) Jay Thompson, a top notch real estate colleague from Arizona, wrote a great article of explanation regarding this revision, with good links as well. Jay is the Phoenix Real Estate Guy and his post is here. [...]

  4. [...] 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 [...]

  5. [...] venturing over to Jay’s site. Political junkies and habitual news-watchers, skip on over to The Phoenix Real Estate Guy’s posts on the stim bill – the first post, and the second [...]

  6. [...] Last example of a well thought out post IMO. This one is from Jay as well. Before you go thinking “Why is he glossing Jay so much?” Simple. It is because he deserved it for this post. [...]

  7. [...] online quickly enough. (That rings a little hollow with me, since some of my favorite bloggers posted links to the entire Senate version of the bill back on Feb 4).  Conservative bloggers spent the [...]

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