The $7,500 Tax Credit for First-Time Home Buyers, which is really a no-interest loan, as it must be repaid, is being replaced by a $15,000 tax credit which does not have to be repaid, added as an amendment to the pending economic stimulus bill. In addition, the tax credit no longer applies only to first-time home buyers, but to anyone buying a primary residence during a one-year period.
2/5/2009 - Tax Credit Amendment Approved by the U.S. Senate (from NAR)
Last evening, the United States Senate unanimously passed a bipartisan amendment, offered by REALTOR® Champions, Senators Johnny Isakson (R-GA) and Joe Lieberman (ID-CT) to the Economic Stimulus Bill creating a $15,000 tax credit to individuals who purchase a home in the next year.
Specifically, the Isakson-Lieberman amendment to the pending economic stimulus bill would provide a direct tax credit to any homebuyer who purchases any home. The amount of the tax credit would be $15,000 or 10 percent of the purchase price, whichever is less. Purchases must be made within one year of the legislation’s enactment, and the tax credit would not have to be repaid.
The amendment would allow taxpayers to claim the credit on their 2008 income tax return. It also seeks to prevent misuse by only allowing purchases of a principle residence and by recapturing the credit if the home is sold within two years of purchase.
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Comparison chart: current law/H.R. 1/senate amendment> (PDF: 218K)
Senate Adds $15,000 Home-Buying Tax Credit to Stimulus Bill (from U.S. News & World Report)
February 05, 2009 11:26 AM ET Luke Mullins Permanent Link Print
The Senate on Wednesday approved an amendment to the economic stimulus package that would provide a tax credit of as much as $15,000 to anyone buying a primary residence during a one-year period. The measure, introduced by Sen. Johnny Isakson, a Republican from Georgia, would reportedly add $19 billion to the already-massive stimulus package.
Here's the release from Isakson's office:
The U.S. Senate today unanimously approved an amendment by U.S. Senator Johnny Isakson, R-Ga., to stimulate the nation’s declining housing market by offering a $15,000 tax credit to individuals who purchase a home in the next year.
“It is time to fix America’s problem, not throw money at the symptoms. It is time to fix housing first. It is rare that we have a road map to success in times of difficulty, but this country has once before realized a housing crisis every bit as bad as the one we have today and economic troubles every bit as dangerous,” Isakson said. “We have a pervasive housing problem, and we have a historical precedent that works. I am proud this Senate has joined together, learned from history and repeated a method that worked by adopting this amendment.”
Specifically, Isakson’s amendment to the pending economic stimulus bill would provide a direct tax credit to any homebuyer who purchases any home. The amount of the tax credit would be $15,000 or 10 percent of the purchase price, whichever is less. Purchases must be made within one year of the legislation’s enactment, and the tax credit would not have to be repaid.
The amendment would allow taxpayers to claim the credit on their 2008 income tax return. It also seeks to prevent misuse by only allowing purchases of a principal residence and by recapturing the credit if the home is sold within two years of purchase. The amendment would sunset the current $7,500 housing tax credit on the date of enactment.
Isakson has pushed hard for a non-repayable tax credit for homebuyers because he knows that it will work. In the mid-1970s, America faced a similar housing crisis when a period of easy credit and loose underwriting flooded the market with new construction. Interest rates rose, the economy slowed and America was left with a three-year supply of vacant homes. Congress responded by passing a $2,000 tax credit for anyone purchasing a new home for their principal residence. Isakson believes the results were clear and swift as home values stabilized, housing inventory dropped and the market recovered.
Last year, Isakson introduced legislation to specifically target those homes that were causing the unprecedented increase in housing inventory by offering tax credits to individuals purchasing a foreclosed home or a home where foreclosure is pending. In April 2008, the Senate passed legislation to stimulate the nation’s declining housing market that included Isakson’s proposal. However, the final version of the legislation that was signed into law included only a $7,500 tax credit for first-time homebuyers that must be repaid over a 15-year period. Isakson’s amendment that passed today would sunset that $7,500 tax credit.
Isakson spent more than three decades in the real estate business, beginning his business career in 1967 when he opened the first Cobb County, Ga., office of a small, family-owned real estate business, Northside Realty. Isakson later served as president of Northside for 20 years, presiding over the company’s growth into the largest independent residential real estate brokerage company in the Southeast and one of the largest in America.
Isakson has not made a decision regarding his vote on the overall economic stimulus legislation.
The $15,000 Home Buying Tax Credit: 6 Things to Know
February 06, 2009 03:15 PM ET Luke Mullins Permanent Link Print
A number of readers have written in asking for details about the home buyer tax credit amendment that was recently added to the Senate version of the economic stimulus package. The provision, introduced by Sen. Johnny Isakson, a Republican from Georgia, would provide a tax credit of as much as $15,000--or 10 percent of the home's price tag, whichever is less--to anyone buying a primary residence during a one-year period beginning on the date of enactment. After reading through your questions, here's a list of six things to know about the amendment.
1. I recently bought a home and qualified for the $7,500 new home buyer tax credit. Should this provision become law, would I qualify for it well? The short answer is no, says Rob Dietz, an economist for the National Association of Home Builders. "The effective date of the…amendment is the date of enactment," Dietz says. "So if you've already completed a purchase, you would not be qualified for the new program."
2. Isakson's press release reads: "The amendment would sunset the current $7,500 housing tax credit on the date of enactment." What does the term "sunset" mean there? In this context, the term "sunset" means that the $7,500 new home buyer tax credit would be supplanted by the proposed $15,000 credit, which applies to all home purchases--not just new homes. "If you are operating under the $7,500 [credit], that's the one you [have]," says Joan Kirchner, Sen. Isakson's Deputy Chief of Staff. "Then, from the date of enactment forward, the new one takes over and nobody else gets the old $7,500 [credit]."
3. What are the odds of this provision becoming law? The $15,000 home-buying provision is a component of the massive--and increasingly controversial--economic stimulus package. The House of Representatives has already passed its version of the stimulus bill, and the White House is putting pressure on the Senate to do the same. However, the size of the package--which now totals more than $900 billion--has prompted some Republic Senators to try and slash provisions to lower the tab. Still, Kirchner argues that the $15,000 tax credit enjoys strong support from the National Association of Realtors and the National Association of Home Builders, and will remain in the stimulus bill that is signed into law. "Because of the way that it was adopted--unanimously, they didn't call a roll call vote because both sides agreed to accept it--this provision is in," Kirchner says. Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, also predicted that the amendment would make it into the final package. "It’s a targeted solution that will address housing as well as taxpayers--both of which need help," he said.
4. Does this tax credit need to be paid back? Nope. That's a key distinction from the $7,500 first-time home buyer credit, which was "actually a 17-year repayment, which translates into a no-interest loan," Dietz says.
5. Is there an income limit or any other restrictions on participation? The tax credit would be limited to primary residences and does not come with an income restriction, Kirchner says. "You must occupy [the property] for at least two years as your primary residence," she says. It applies to "any home, meaning a condo, a house, foreclosed, new, [or] previously owned."
6. Can I take the credit during tax year 2008? Yes, says Chris Cook, a legislative assistant to Sen. Isakson. Even if you buy a home in 2009, the provision would enable you "to file your taxes as if you purchased your home on December 31 of 2008," he says.
From a blog:
$7,500 Tax Credit for First-Time Home Buyers
I’ve been hearing a lot about this new $7,500 tax credit for first-time home buyers, which is part of the newly passed 2008 American Housing Rescue and Foreclosure Act. Is it as great as it sounds?
A new website has been put up with more information about this tax credit. Curiously, the fact that this “credit” has to be paid back over the next 15 years (or when you sell) is conveniently left out of the “At A Glance” section, and you have to scroll down to question #15 in their Frequently Asked Questions to learn about the repayment terms. Did I mention the site was created by the National Association of Home Builders? No way would they want to mislead potential home buyers, right?
To qualify, you must close on your new house between April 9, 2008 and July 1, 2009. A good summary of this tax credit interest-free loan is in this Fortune article:
The “first-time home buyer credit” is a temporary refundable, repayable tax credit equal to 10% of the purchase price of a home, up to $7,500 for singles and married couples filing jointly. (Singles who buy a house together get only $3,750 each, as do married couples filing their tax returns separately.) [...]
But the way the credit works, it’s actually more like an interest-free loan. Two years after you claim this credit, you have to start paying it back. The payback comes over 15 years in 15 equal installments–meaning you owe an extra $500 on your tax return each year. Sell your house, and you have to pay the rest back that year from your profits. (No profits, no pay back. Also, if you die, your heirs are off the hook.)
The allowed credit starts being reduced once a single has $75,000 of modified adjusted gross income, or once a couple has $150,000 of income. The credit goes away entirely at $95,000 for singles and $170,000 for couples.
The justification behind a $7,500 interest-free loan is that it is supposed to ease the “pain” of having to come up with closing costs and a downpayment. But wait… Wasn’t the housing bubble caused in part by people being tempted into buying houses they couldn’t really afford because they didn’t need to first save up for closing costs or a downpayment? I find it ironic that our choice of “buyer assistance” is even more easy lending.
Now, of course I would still grab this tax “credit” if I was going to buy a house anyway. I’d happily take a 0% interest loan on $7,500 for any period. But why not just give us something simple and straightforward, like a check for $1,000? My guess is that the phrase “$7,500 tax credit” works better to pacify angry citizens.
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