A True Tax Credit for Home Buyers
Stimulus bill increases the incentive to $8,000 and removes the all-important repayment requirement.
By Kenneth R. Harney
February 22, 2009
Reporting from Washington — Now that Congress has fixed the crucial flaw in last year's home-purchase tax credit, who will be able to make use of the new and improved version? And what about timing: How long do buyers have to find a house and close the deal to qualify?
These are just two of the flurry of questions surrounding the $8,000 housing credit for 2009 authorized in the sprawling, $789-billion stimulus plan.
In formulating the final terms of the bill, congressional negotiators added $500 to last year's $7,500 credit and eliminated the repayment requirement from the 2009 version.
Unfortunately, qualified buyers who closed in 2008 will not reap the benefits of the 2009 amendments. They're stuck with the old model, and will have to pay back the credit -- more correctly an interest-free loan from the government -- over the coming 15 years.
So, only buyers who close between Jan. 1 and Dec. 1 of this year may qualify for the new, no-repay credit. But they'll still have to pass most of the eligibility tests imposed under the 2008 program.
For example, they must be "first-time" buyers under the 2008 definition: Either you've never owned a house before, or you haven't owned or co-owned one during the three years preceding the date you close on your 2009 purchase.
Carefully planning the timing of your closing could be worth thousands of dollars to you. Say you owned a house earlier in the decade, but sold it on March 25, 2006. If you close on a house in 2009 before March 25, you do not qualify for the $8,000 credit. Push settlement back to March 26 or later -- any time before Dec. 1, when the new credit program's eligibility period expires -- and you're $8,000 to the better.
As in the 2008 credit, there's a household income test as well. The 2009 version phases out eligibility for the credit starting at $75,000 annual adjusted gross income for single taxpayers, and $150,000 for joint-filing couples. The 2009 program also removes last year's prohibition against purchases financed with state and local tax-exempt mortgage revenue bond programs, which are popular among moderate-income home buyers in many parts of the country. This year such loans won't eliminate your eligibility for the $8,000 credit.
Under the 2009 program, the house you buy must be used as your principal residence, not a second home or investment property. But that residence can take a variety of forms, including "houseboats, house trailers, cooperative apartments [and] condominiums," according to IRS rules.
Congressional sponsors of the revised program offered no projections of how many additional home sales would result from the removal of the repayment feature, but the National Assn. of Realtors has weighed in with its own estimates: 300,000 more houses will sell during 2009 as a direct result of the credit. Add in the "ripple effects" -- higher expenditures on furnishings, appliances, remodeling materials, brokerage commissions, moving costs, etc. -- and the economic jolt could be significant over a relatively short period.
Other sections of the stimulus package that haven't received much attention, but still could benefit large numbers of homeowners and buyers, include:
* An increase in the maximum mortgage amounts permitted for funding by Fannie Mae, Freddie Mac and the Federal Housing Administration -- essentially a rollback to 2008's high-cost area limits, which range as high as $729,750 in the most expensive markets of California and portions of the East Coast. That's potentially important for all buyers -- not just first-timers -- in those areas because it should open the door to lower interest rates on the big loans they need to buy even median-priced houses. The current high-cost area limits top out at $625,500.
* Hefty increases and extensions for tax credits to stimulate "qualified energy efficiency improvements" in existing homes. The expanded credits cover improvements to air-conditioning systems, or natural gas and propane furnaces and water heaters.
* Additional funds totaling $2 billion to enable local governments and nonprofit groups to acquire and renovate foreclosed and vacant dwellings that are depressing property values in urban and suburban neighborhoods hit hard by the housing and mortgage messes.
