Expanded Home Buyer Tax Credit to Cost $10.8 Billion

Posted by: Prashant Gopal on October 29, 2009

Majority Leader Harry Reid’s office just sent me an outline of the Senate Democrats’ plan to extend and expand the home buyer tax credit. Much of this was covered in my previous blog post. But there’s one new detail that hasn’t been reported elsewhere. It will cost $10.8 billion. That’s a bit more expensive than the existing credit, which will have cost taxpayers about $8.5 billion by the time it expires Nov. 30.

Some more details:

*The credit is available for homes that go under contract by April 30, 2010 and close within 60 days after that.

*It will be attached to a bill to extend unemployment benefits, but it’s unclear when that bill will be voted on.

* First-time buyers (those who have not owned a home for three years) can claim an $8,000 credit. Homeowners who buy a new principal residence after living in their current home for at least the last five years can claim up to $6,500.

*Income limits: $125,000 a year for individuals, $225,000 a year for married couples.

* The proposal will include anti-fraud measures, including minimum age requirements and additional authorities for the IRS.

I ran the $10.8 billion figure by Moody’s Economy.com chief economist Mark Zandi, who hasn’t yet come up with a cost figure for the current proposal. But he said “that sounds in the ball park.”

Reader Comments

sam

October 29, 2009 06:13 PM

Why are the existing home owners who are already in trouble and not getting enough help, are supposed to pay 8000$ for new home buyers? Thats not sense.

Sue Rossi

October 29, 2009 06:31 PM

The logic behind "expanding" the tax credit to current homeowners is to stimulate the trade-up market, which is stagnant despite increased activity. The reason the trade-up market is stagnant is because a disproportionate number of first-time buyers are buying vacant bank foreclosures, instead of buying from an owner-occupant with a sign in their yard, permitting them to trade up (or build). If the Senate expands the tax credit to provide a financial incentive to current homeowners, they better also modify the first-time buyer credit to limit those purchases to owner-occupied properties, to create the necessary demand that will surely be needed when all the hopeful "trade-up buyers" put for sale signs in their yards all at once. Especially with a limited window ending on April 30. If this passes as proposed, watch inventory skyrocket and thus prices fall. If we want to truly correct the market, modify the first-time buyer tax credit and require them to buy from a taxpayer -- they will buy again, and the next person up the ladder will build. New construction will recover, builders will hire labor, retail will recover. It's just not that hard.

Sam

October 29, 2009 10:41 PM

Question for me is that I make 85K and I am supposed to close prior to Dec 1st, so under current law my credit is 4K. If this passes and the amount goes up to 125K, do I now get the full 8K or do I need to purchase after Dec 1 to get it?

hmp49

October 29, 2009 11:16 PM

I'm stunned that the public is not outraged at this giveaway.

Why are people who make $225,000 a year being given $6,500-$8,000 to buy a house? What about renters who make a lot less? Where are their checks?

And then the obvious - just like rebates on cars, and Cars For Klunkers, demand disappears when the program ends. Moreover, since there are people will have to sell for one reason or another, and demand will be weak, prices will eventually end up going lower than they would have otherwise.

sandeep

October 30, 2009 11:18 AM

what are the inclusion dates for the new income limits
if I bought home in July 2009 will I be eligible.

ben

October 30, 2009 11:41 AM

Will this be retroactive for someone who bought earlier in 2009 and who would not otherwise have qualified for the $8,000 credit?

Warren

October 30, 2009 12:31 PM

The couples who make 225K are getting a tax break, and those are the upper middle class citizens that we need to stimulate. As I said in another post, we need to expand this credit to anyone. For the richer its a tax break, giving them a reason to buy a second home. We need to stimulate the upper middle class. Those people sitting on big CD's and savings accounts. Get that money invested into the economy and housing will come back.

Talia

October 31, 2009 10:17 AM

This story says "living in their current home for at least the last five years can claim up to $6,500" and another story says "owned for five years." We've lived in our house for over 2 years but we have recently relocated and and are renting. If were were actually able to sell our house, would we be able to buy a house with this credit, seeing that we make about $30,000 a year? Can someone clarify?

Also, I agree with Sue R who posted before me...Our house has been on the market for almost a year, we've dropped our price 20% but anyone who can afford to buy will buy a foreclosure--The majority of sales in that area. The rest cannot buy because they are sitting on their house. An owner-occupied clause makes sense in this stagnant home market.

Viren

October 31, 2009 01:15 PM

This is indeed a great way to actually destroy the housing market.

Carolyn R

November 2, 2009 08:09 AM

Why is anyone even talking about the price tag of the first time homebuyer credit??

It cost 8.5 billion the last time around..and some 1.2 million homebuyers bought homes contributing to over 50% of the sales in the last 6 mos.

It will cost 10.8 billion to extend it? Let's talk about the 1.3 trillion "gifted by Geithner" to Wall St "too big to fail" people.

If you want to bitch about how your tax dollars are being spent, then try GMAC being bailed out for the THIRD time. The slightly less than 20 billion dollars is a "rounding error" for our current administration and the folks that make the laws in DC!

I agree with the comments about giving the upper middle class a tax break for buying a home. JUST SAY NO!

As to the overall housing market..just wait until spring when the "tsunami" of resales comes on the market. I've tracked it on RealyTrac.com..it looks like ants in an ant colony. If you want to know about your housing market..establish a trial period with RealtyTrac and key in the data. IT'S SCARY!!

Carolyn R.

Carolyn R

November 2, 2009 08:09 AM

Why is anyone even talking about the price tag of the first time homebuyer credit??

It cost 8.5 billion the last time around..and some 1.2 million homebuyers bought homes contributing to over 50% of the sales in the last 6 mos.

It will cost 10.8 billion to extend it? Let's talk about the 1.3 trillion "gifted by Geithner" to Wall St "too big to fail" people.

If you want to bitch about how your tax dollars are being spent, then try GMAC being bailed out for the THIRD time. The slightly less than 20 billion dollars is a "rounding error" for our current administration and the folks that make the laws in DC!

I agree with the comments about giving the upper middle class a tax break for buying a home. JUST SAY NO!

As to the overall housing market..just wait until spring when the "tsunami" of resales comes on the market. I've tracked it on RealyTrac.com..it looks like ants in an ant colony. If you want to know about your housing market..establish a trial period with RealtyTrac and key in the data. IT'S SCARY!!

Carolyn R.

Steve, the Angry Renter

November 2, 2009 09:54 AM

3.5% down FHA (ie, government-insured financing) plus $8000 tax credit = 0% down baby!!! The government's bringing the bubble back! Happy times!

Bubble Jr, II

Laurie

November 2, 2009 04:48 PM

Re: Sandeep
October 30, 2009 11:18 AM
what are the inclusion dates for the new income limits
if I bought home in July 2009 will I be eligible.

I would like to know that answer also. I sold my home of 19 years and bought another in June 2009. Will I be eligible for the $6500 credit?

Bass

November 2, 2009 09:51 PM

How many bailout and stimulus programs do we have so far? Who is going to pay for all of this?

kl

November 4, 2009 08:27 PM

10.5 billion dollars is only $33 per citizen (on average). Where can my family send our share so that someone with more money than us can buy a house that we will never be able to afford?

frank d

November 5, 2009 10:23 AM

Curious about the initial sale / closing date to qualify for the $6500 credit as well. We traded up July 31st and the credit would go directly to home improvements.

Jerrid

November 5, 2009 11:17 AM

What if I closed on my house on Oct 25, 2009, 2nd home? Lived in it for over five years. Will I still be able to get the $6500 tax credit?

Patti

November 5, 2009 12:06 PM

How do we find out if this is retroactive. I closed in August. I can't seem to find anything on line.

Rogenia

November 5, 2009 03:09 PM

I would like to know that answer also. I sold my home of 15 years and bought another in June 2009. Will I be eligible for the $6500 credit?

Rogenia

November 5, 2009 03:09 PM

I would like to know that answer also. I sold my home of 15 years and bought another in June 2009. Will I be eligible for the $6500 credit?

Kelly

November 5, 2009 08:25 PM

I owned and lived in the same home from 1998 to 2008. Had to sell due to divorce and am currenlty renting. I'm obviously not eligible for the $8000 first time homebuyer tax credit but am I eligible for the $6500 tax credit? I owned for 5 years out of the last 8 years.

Please help clarify!

Donna

November 5, 2009 08:44 PM

Unbelievable, I did not qualify for the $8,000 tax credit because I have owned a 73 mobile home not even valued at $8,000 for 14 years that I never had a mortgage and now that I have purchased a home in October it is extended and expanded to current homeowners. I am sure it won't be retroactive. I always get the shaft :)

SUPER DUPER

November 6, 2009 04:08 PM

I see people abandoning homes and destroying the housing market with the no doc borrowing. Someone don't have the money to pay still can buy several homes during the market boom. If people cannot pay the monthly mortgage or lost a job, does it help to giving $8000/$6500? Is this investor opportunity? How many more abandon homes will see in U.S.? Why tax payers help people stretch their budget to a limit? Is the bailout an encouragement to take chances? It will only destroy the country. Sad! Very Sad!

Barb

November 7, 2009 06:29 AM

I'm with you Donna. I bought a mobile home in 1993 because we couldn't afford a "regular" home. So owned the home but not the land and we don't qualify as well. I'm hoping this new 6500.00 is given out like the 8000.00. Never seem to get the great break.

Darrell

November 7, 2009 08:38 AM

I have lived in my home for the past 3 years now I want to sell and relocate to another state and purchase a new home do I qualify for the $ 8000 tax credit.

Matt Burel

November 11, 2009 09:56 AM

Melissa: “My husband and I were transferred from (Texas) to (Indiana) over the summer for his job. We had owned our home in (Texas) for 11 years. We closed on our new (Indiana) home in August 2009. If the tax credit will be retroactive, we qualify in every other way. Anyone know if we will qualify for this tax credit, or if we’re going to get taken for $6,500 just because we bought a few months too soon?”

Answer: Unfortunately, the bill has no “grandfather” clause, Mr. Dietz says. “If you’re an existing homeowner, and they’ve closed prior to the date of enactment, when the president signs the legislation, they simply do not qualify.”

Matt Burel

November 11, 2009 09:56 AM

Melissa: “My husband and I were transferred from (Texas) to (Indiana) over the summer for his job. We had owned our home in (Texas) for 11 years. We closed on our new (Indiana) home in August 2009. If the tax credit will be retroactive, we qualify in every other way. Anyone know if we will qualify for this tax credit, or if we’re going to get taken for $6,500 just because we bought a few months too soon?”

Answer: Unfortunately, the bill has no “grandfather” clause, Mr. Dietz says. “If you’re an existing homeowner, and they’ve closed prior to the date of enactment, when the president signs the legislation, they simply do not qualify.”

Grady

December 27, 2009 03:34 PM

I am experiencing this! We bought a home under the adjustable rate in the year 2006. We put our life savings of 20,000.00 down to bring the mortgage down from 187,000.00 to 167.000.00 with the owner doing a 6,000.00 second mortgage. We are BLACKS that bought into a 99% WHITE area. After two refinances to get to a fixed rate, one by JP Morgan Chase that still left it at an adjustable rate as to where the 6,000.00 dollars was due and then ending up with Wells Fargo at a fixed rate, and after applying for the Home Affordability Act....We ended up with a reduction on our interest by 3/4ths to a 5.25%.. no equity..and a NEW LOAN amount of $205,000.00....DOES THIS MAKE US ELIGIBLE FOR THE $8,000 tax credit or the $6500.00 tax credit.. According to H&R Block we don't qualify for neither

Grady

December 27, 2009 03:34 PM

I am experiencing this! We bought a home under the adjustable rate in the year 2006. We put our life savings of 20,000.00 down to bring the mortgage down from 187,000.00 to 167.000.00 with the owner doing a 6,000.00 second mortgage. We are BLACKS that bought into a 99% WHITE area. After two refinances to get to a fixed rate, one by JP Morgan Chase that still left it at an adjustable rate as to where the 6,000.00 dollars was due and then ending up with Wells Fargo at a fixed rate, and after applying for the Home Affordability Act....We ended up with a reduction on our interest by 3/4ths to a 5.25%.. no equity..and a NEW LOAN amount of $205,000.00....DOES THIS MAKE US ELIGIBLE FOR THE $8,000 tax credit or the $6500.00 tax credit.. According to H&R Block we don't qualify for neither

Grady

December 27, 2009 03:34 PM

I am experiencing this! We bought a home under the adjustable rate in the year 2006. We put our life savings of 20,000.00 down to bring the mortgage down from 187,000.00 to 167.000.00 with the owner doing a 6,000.00 second mortgage. We are BLACKS that bought into a 99% WHITE area. After two refinances to get to a fixed rate, one by JP Morgan Chase that still left it at an adjustable rate as to where the 6,000.00 dollars was due and then ending up with Wells Fargo at a fixed rate, and after applying for the Home Affordability Act....We ended up with a reduction on our interest by 3/4ths to a 5.25%.. no equity..and a NEW LOAN amount of $205,000.00....DOES THIS MAKE US ELIGIBLE FOR THE $8,000 tax credit or the $6500.00 tax credit.. According to H&R Block we don't qualify for neither

Angela

January 6, 2010 12:28 PM

Why do people have a problem with the upper middle class. They don't get a break on hardly anything. I am for helping everyone get a break. We all pay taxes or at least those who work, do. I am not upper middle class and I don't get any handouts. I work for what I get. I also bought a home over the summer and no tax break here either!!

Sue

January 15, 2010 09:43 AM

How fair is it, that since we closed on our house in July 2009, we are not eligible for the $6500 tax credit, even though we spent $60,000 on improvements, which provided work for many people? My husband and I seem to fall through every crack possible, where tax law is concerned!

Sue

January 15, 2010 09:43 AM

How fair is it, that since we closed on our house in July 2009, we are not eligible for the $6500 tax credit, even though we spent $60,000 on improvements, which provided work for many people? My husband and I seem to fall through every crack possible, where tax law is concerned!

Kyle Smith

March 10, 2010 11:37 AM

We owned our previous home for over 5 years, then rented 1 year and then we purchased our new home in January 2009. Do we qualify for the 6500.00 credit?

Thank you for your interest. This blog is no longer active.

 

About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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