Home Buyer Tax Credit Could Soon Be Extended, Expanded

Posted by: Prashant Gopal on October 28, 2009

It’s increasingly likely that Congress will extend and expand the popular home buyer tax credit, which will expire next month. CNN.com reported today that a compromise proposal based on bills that have already been introduced could pass the Senate as early as this week (assuming that it is attached to a bill to extend unemployment benefits).

The compromise bill would likely open the program to some existing homeowners. The expiring tax credit is limited to buyers who have not owned a home for the last three years.

According to a CNN.com story today:

* First-time buyers could continue to claim up to $8,000. But existing homeowners who have lived in their home for five years could receive up to $6,500 if they trade up to a larger principal residence.

* The full credit would be limited to buyers who earn less than $125,000 a year and for married couples with annual incomes up to $225,000.

* The credit could only be used for homes selling for $800,000 or less.

* Contracts must be signed by April 30, 2010 and sales must close by June 30.

Mark Zandi, chief economist for Moody’s Economy.com (MCO), told me recently that he supports the extension because the housing market could take a big step back without it. But he agreed with critics that it is one of the most inefficient ways for the government to support housing.

According to Zandi, only 22% of about 1.8 million buyers who will claim the soon-to-expire credit would not have bought a home but for the incentive. Expanding the credit to include previous homeowners and extending the credit through June will cost about $30 billion, on top of about $8 billion that would have already been spent, he said.

The compromise bill outlined here might be cheaper because it seems to more narrowly define the existing homeowners who can take advantage of the credit.

Reader Comments

Aaron

October 28, 2009 06:34 PM

I agree with everything here, except why exclude people who have lived in their home for less than a year. These are most likely the people struggling most as they bought at the peak of the market and now have negative equity. Either get rid of it or expand it to all buyers!

Bryan

October 28, 2009 06:35 PM

The Democrats, which represent "big labor," want to give the unemployed "more welfare time" ... so they don't get in line to claim Social Security Disability. The Republicans, who represent the realty industry and manufactures which sell granite countertops, want to keep home prices at way above, 40% by my numbers, the market price is housing prices were allowed to obey supply/demand and wage fundamentals. Look for both to pass and the market to crash in the summer of 2010 when gasoline goes to $5 gallon.

Larry Lathrop

October 28, 2009 06:51 PM

This is a really, really, REALLY bad idea. Just what are they thinking? It looks like a move of complete desperation.

tim

October 28, 2009 07:13 PM

As someone waiting to buy a home this depresses me. It isn't going to keep house prices from going where the market says they should - it's just going postpone it six months and add time to when I feel comfortable buying. That also means it is adding six more months before we can have a recovery. Axe the credit, let the chips fall where they may. I'm tired of them using my tax money to make houses more expensive for me to buy.

John Stikes

October 28, 2009 08:16 PM

As a Realtor in South Alabama, I would like to see the tax credit continued and expanded to all buyers. The real estate market has carried this Country and prevented a deeper recession. Everyone should try to feed this goose that is laying the golden eggs. In addition, this tax credit is putting stimulus money in the hands of the common man instead of big banks, auto makers, insurance giants, etc. Putting money where is can do the most good. Great way to stimulate our economy.

Ike

October 28, 2009 08:43 PM

Politicians are idiots - enough said!!!

Shane

October 28, 2009 09:46 PM

There's good and bad to this, but I agree with keeping the tax credit out of the hands of the rich who definitely don't need more cash burning a hole in their pocket. Leave it for the people who are having trouble buying a home for the first time or wanting to upgrade to a new home (thus opening a cheaper home up for first-timers).

Hugo van Randwyck

October 29, 2009 06:08 AM

Socialism doesn't work, free enterprise does. Instead of calling it a 'Home Buyer Tax Credit' they could call it something closer to what it is, for example 'Housing Bubble Re-starter funds'. A key to any business selling more of a product, with the same quality, is lowering the price of the product - same for housing. If house prices stay high, then rents will stay high - so how do people who have foreclosed get back on their feet again, and start spending, and creating jobs? How can people renting save quicker for a down payment on a house? I can understand the tax crdit for renewable energy - a great incentive - since it creates real jobs in an expanding industry. Better to spend the money there, more likely to generate wealth and help the budget into balance.

L. Adams

October 29, 2009 08:58 AM

If the provision is that the homeowner trades up, then this should be opened to all homeowners. If I've only lived in my home 3 years and I'm willing to trade up, then why shouldn't I be included? I'm baffled by the five year requirement.

Jin Ning

October 29, 2009 09:08 AM

I don't want a bigger house. I don't want to move. I own my house without a mortgage and want to know where my bailout is?

I am for the stimulus, but not a handout to realtors, builders and the mortgage industry. This only jacks up house prices and creates a false economy based on government subsidies.

Use the money to help all the citizens such as mass transit or other infrastructure.

Rich

October 29, 2009 09:32 AM

Better make sure to add a provision that says that you must sell your previous home to buy the new one. Otherwise people will fraudulently "rent" their previous residence and allow their previous residence to go into foreclosure after they claim their tax credit. I say just keep it to the first time homebuyer.

Barbied

October 29, 2009 10:45 AM

This is a bad idea. What is the difference how long you owned your home? What about credit for those that need to downsize? Besides, the going "bigger" is what got us into trouble in the first place

Barbied

October 29, 2009 10:45 AM

This is a bad idea. What is the difference how long you owned your home? What about credit for those that need to downsize? Besides, the going "bigger" is what got us into trouble in the first place

judy

October 29, 2009 12:12 PM

You all are a bunch of bozos. I need my tax credit. You always whine...asking what about me. You always have your hands out asking for a bailout. I have been in my home 1 year...I have been in my home 3 years...what about me?? You are just so greedy. Move to another country if you do not like it here. Ugh!!!!!!!!!!

Sasha

October 29, 2009 12:28 PM

As someone who was an existing homeowner and just sold their home this week....I find it frustrating that I would not receive an advantage as the buyers of my home just did. I think if they are going to open it up, they should retro it back...jmo.

Roger

October 29, 2009 12:43 PM

Most people really don't understand how the tax credit works, it's no different than a tax break to eligible people. If a person get the $8000 tax credit, they simply save on average of about $2400 in taxes at a 30% tax rate. Some secondary lenders are fooling buyers in thinking they are going to get $8000 in cash. Big misconception!! And again you only get the full tax credit if you spend at a minimum of $80,000 on a home. I'm all for the tax credit, I hold a real estate license and I'm a homebuilder and nothing stimulates the eoconomy more than the housing market. I earn good money and right now, even I can't buy or build rental property because of the mess that banks put themselves in. I have seen homes sold to people fresh out of bankruptcy. The banks created this mess by volume financing rather than actually checking credit of buyers.

Cheryl

October 29, 2009 01:06 PM

I sincerely hope they can extend this credit. I am a single mother & would love to buy a home & tae advantage of this credit but I'm not ready yet. If they could extend 6 more months, I would a opportunity to buy my first home. I strongly believe the credit should only be extended to first time home buyers.

John

October 29, 2009 01:20 PM

Judy is right on( see Oct 29th 12:12 PM)..... 5 years takes all the property fippers out of the equation and stimulates the ecconomy (apprasers, realators, home inspectors, title companies just to metion a few) and could create more jobs. creating more tax dollars. See this a good idea

TK

October 29, 2009 01:27 PM

I purchased a home in June of 08 did not need the tax credit to buy the house but I did apply for it and use it to pay off bills. Which is good. The thing that gets me 08 was the first year for it and it was for 7500 the difference between then and now is that now is 8000 and I have to pay back the 7500 over 15 years or when I sell my home. But people who buy now get the 8000 and do not have to pay a penny back. Something does not seem right about that.

Amy

October 29, 2009 01:28 PM

The major problem I have is that I bought my home in 2008. I was entitled to a $7,500 tax credit which I happily took. HOWEVER, I have to pay mine back each year but the people who bought their home in 2009 so not. This is not logical at all. Because I bought my home in the beginning of the housing crisis as opposed to the middle, I'm being penalized? Why should I have to pay mine tax credit back because I bought my home a few months too early?

Kristi

October 29, 2009 01:43 PM

I think maybe we need some clarification. For example; Do they mean 'up to 5 years' because to limit it to only if you've actually owned for 5 years doesn't seem to make a lot of sense to me. I am buying a home but I'm not a new home buyer and I didn't own my last home for 5 years yet I can't be included according to the way this article is worded. Wait and see I guess.

Kristi

October 29, 2009 01:47 PM

And as far as being extended to only first time home buyers - I don't agree. I'm a first time home buyer on my own (newly single mother) but because I owned a home with my ex-husband within the last 3 years I can't be considered for the tax credit. I have a good job and would like to have a home for me and my children. I hope that the $6,500 tax credit can include me.

Joe

October 29, 2009 02:01 PM

What is depressing, is that I have had my house up for sale for 1 1/2 years and no buyer yet. My wife and I would like to move our family to a bigger residence, but without a buyer, we're stuck.

Sandy

October 29, 2009 02:10 PM

I do hope they extend this tax credit. It's really NOT like they are giving away free money when you think about FHA financing and all the fees involved when you buy a home. You may have 10 thousand or more in financing fees,so why not make the consumer feel like they are getting something back? I really wish they would make this available to use for the down payment on the home. That would bring out the buyers.

tim

October 29, 2009 02:10 PM

Amy, you bought early and are being "penalized" for it. Everyone who is buying now with the $8k credit is going to be "penalized" as well when the credit finally goes away and everyone realizes that the credit artificially inflated home prices.

I am in a bubble area where I expect prices to drop another 30%. If I were to buy a home that I find desirable now to take advantage of the $8k credit it may cost me $300k. In 18 months a similar house will most likely be around $200k-$220k. Over 30 years, with interest taking the $8k credit would cost me an additional $160k-$200k.

Today's buyers with their $8k credits and 3.5% down are tomorrows foreclosures.

A J

October 29, 2009 02:24 PM

I am all for it...I am 27 years old and expecting my first child (in 26 days ;-)). First time on my own and purchasing a home after saving FOREVER. I just made an offer for over $100,000 on a beautiful 4 bedroom home in a great neighborhood on 10-26-09. (IT IS WORTH EVERY PENNY SINCE I HAVE BEEN LOOKING FOR A HOUSE FOR 4 MONTHS AND HAVE SEEN THE LOWEST OF THE LOWS) And I am PRAYING to close by 11-30-09! The credit IS the reason I decided the time was now. Please understand this does help SOME PEOPLE!

Sarah

October 29, 2009 02:40 PM

Good to see there is an attempt to move the credit into the hands of the east coast MIDDLE CLASS. Let's stop parotting the idiotic news media the talk of rich and poor, red and blue - are they campaigning for office? The rich, meaning people who earn millions a year, are able to buy homes, seek tax credits in other countries or other shelters. There are so few rich that it does not make sense to think about them. Let's say for example, you earn less than $75K in NYC a year. Do you think you can buy a one bedroom apartment on that salary? You can barely save $ at all. You are lower middle class in the east coast on that salary, not even middle class. Why not give the tax credit to everyone fairly? The income limit punishes the MIDDLE CLASSes, the 80%, not the rich. The income tax in NYC is already 10% and the sales tax is ~9%. Social security and medicare TAXES are 10%. So, the middle classes are paying 45% to 50% in income taxes already. We barely have jobs and will need to foot the bill for the "stimulus plan." Not much of a plan for the MIDDLE CLASSes on the eastern seaboard. Remove the income limit. Why punish people who work? Or do you want everyone to be poor wards of the state, oops, that's called COMMUNISM.

Warren

October 29, 2009 02:44 PM

They need to stimulate the people sitting on a mountain of cash in savings accounts to buy. Give a tax credit/tax break to the people who can actually afford a second home. People like my parents, baby boomers, who put thier investments in CD's and money market accounts pre 2008 are just waiting for opportunity to put that money back into the economy. Give them a 8K dollar credit to buy a second home, vacation home and the housing inventory will dissappear within a year. But our goverment keeps trying to stimulate the first time buyer, who has marginal credit, to jump into a house. Isn't that similar to what politicians tried with housing programs in the past. The goverment will never learn.

Lenny

October 29, 2009 03:03 PM

I wouldn’t call it socialism. This is free-enterprise in its own. It's giving people an opportunity to buy a home and advance in life... to contribute to the American society however way we look at it.
Truth is a lot of people got burned with the housing bubble we seen for a few years. Some who didn’t have the opportunity to participate then can now participate by taking advantage of the tax credit(s), housing prices and affordability. Our tax money is being spent without our consent, the government dipped into our pockets without asking... so why not reward the American people in the same manner?

Do I fit in any of the categories to take advantage of these opportunities? Nope, I'm on the side lines watching others prosper... and it's okay.

Honestly, I think the government acted hastily with re-upping the tax credit. They should have waited until either Mid November or after the first tax credit was about to expire. Now we won't have the correct numbers to tally up from the first tax credit. This does not surprise me though, that’s our government for us. But, we knew it was going to happen because of the advertised results… And, FHA did the same last year when they increased the loan limits nationwide.
I do not believe this is a temporary solution to our problem.
I don’t think you realize how dependant other countries are on the U.S. economy. Almost all countries are heavily invested in our Economy if we were to not function in a productive manner then we could possibly “tank” on an international level. Besides military level we would be 2nd to 3rd rate.

Lenny

October 29, 2009 03:13 PM

Also, I see others commenting on that "everyone" should be able to participate with the tax credit. I agree 100%! When the housing bubble busted I had 3 investment properties, 1 primary residence and a 2nd home that i had worked so very hard for. on top of that we had some serious medical problems then that required me to go out of the country for treatments which worked fine but it was all out of pocket. When work slowed down and bills piled up I still had to maintain payments, upkeep ect.. I went through a miserable 3 years by somehow making payments, selling my homes and paying the difference of what it was worth and what i had owed. Somehow, I was able to do it without taking the short cut of foreclosing, short sale or any other easy way out. I sucked it up and made the best of it. It bothers me that the people who did what i had done was not rewarded or compensated for doing the right thing as others who took the easy way out are getting help.

Warren

October 29, 2009 03:49 PM

Sarah is on point with the issue. Give the tax credit, or as it would be to people with higher incomes, tax break, to the rich and you will bring housing out of its rut quickly.

Warren

October 29, 2009 04:42 PM

Congratulations on making it through the storm Lenny. You sound like you probably make more than I do annually but we both would get value out of an incentive to purchase another home. Even though I am considered middle class, I could definitely afford to buy a recreational home if given a reason. So thats two of us on one website, just think how many more are out there, sitting and waiting. And with the banks tighter lending restraints, people who can actually afford it will buy this time.

Mario

October 30, 2009 01:16 AM

I definitely can understand and relate with others to be eligible for a homebuyer credit. Still, some of the postings that I have read contain incorrect information and just confirm the stupidity of some people. First, Roger(October 29 12:43pm)mentioned that the $8,000 credit will simply save on average of about $2400 in taxes at a 30% tax rate. YOU ARE WRONG!!! The $8,000 credit is a TAX CREDIT which means it is applied against income taxes dollar for dollar. What he mentioned would be true if the $8,000 was treated as a deduction against your income. Second, Sarah(Oct. 29 2:40pm)mentioned that social security and medicare taxes are 10%. YOU ARE WRONG!!! Social security is 6.2% of your first $106,000 wages for 2009 and no further social security is paid after than amount. Medicare is 1.45% with no income limit. So, social security and medicare total 7.65% if you make $106,000 or less in wages for 2009. What do you expect New York state to have such a large state income tax? NYC alone has millions of people living in studio aparments for over $2,000 a month. Over population in such a small area leads to higher costs!!! These examples are just a couple of the many misinformed and freely spending Americans that contributed to our fine economic downturn. WHAT IS AGGRAVATING THE MOST IS THAT PEOPLE LIKE ME HAD THEIR HOME VALUES DEPRECIATE BY MORE THAN 20%. YET, I MADE SURE TO PURCHASE MY HOUSE AT A REASONABLE PRICE WITH A 20% DOWN PAYMENT,A FIXED RATE LOAN, AND A LOW MONTHLY MORTGAGE PAYMENT IN COMPARISON TO MY MONTHLY INCOME. THANKS TO ALL OF THE FINANCIAL IRRESPONSIBLE PEOPLE WHO MADE IT MORE DIFFICULT FOR US LEVEL HEAD PEOPLE!!!!

Ralph

October 30, 2009 05:49 PM

Yo Roger. You speaketh but knoweth not. A tax Credit is a direct reduction of the tax you owe. If your tax bill is Zero and you qualify for the credit you will recieve a refund of $8,000. This is the difference between a credit and a deduction (Roger is thinking deduction).

Natasha

October 30, 2009 07:51 PM

You said it Mario, People who can't manage their finances are destroying our economy. I'll admit that I have had financial difficulties over the past 2 years, but I managed to survive without sucking off of other tax payer's resources (speaking to people who don't look for new jobs but collect unemployment..etc.) Plus all of the idiots who did balloon payments and shady home mortgages, you people are idiots and definitely should have thought about what you were doing before you signed on the dotted line. I think that if you are against the tax credit then you don't give a crap about the economy and really shouldn't be complaining about it. Having empty homes on your street is depreciating the value of your home, so you shouldn't complain when someone buys a house next to yours. Even if they did use a tax credit to help purchase it. It does suck for all of the people who got the tax credit before that you have to pay back, and they should do something to help you guys. But if you hadn't got the credit in the first place you might not have gotten a home at all. So stop your complaining. Finally, Isn't it better to give money to real people than businesses???? Seriously I'd rather give my neighbor Joe Blow $8000 than the CEO of AIG. Think about it.

John

November 1, 2009 05:28 PM

I believe we need to let existing homeowners regardless of income enjoy a tax credit for purchasing an additional home. Existing inventory reduction is everybit as important to stabalizng real estate values.

Carolyn R

November 2, 2009 08:18 AM

STOP IT EVERYONE! STOP playing "he got a bigger pencil than I did"!!

I call it the WIFM theory..what's in it for me!! If you all want to bitch about something try bitching about the 1.3 trillion spent on "too big to fail" companies. And now Geithner wants to spend 2.8 billion to bail out GMAC for the THIRD time??

Anything under 20BILLION is a "rounding error" for this administration and the folks in DC making our laws and passing them without our consent! Don't just blog or comment to one another! STAND UP, SPEAK OUT!! They can't vote up or down if you vote them entirely out of office.

Carolyn R

November 2, 2009 08:18 AM

STOP IT EVERYONE! STOP playing "he got a bigger pencil than I did"!!

I call it the WIFM theory..what's in it for me!! If you all want to bitch about something try bitching about the 1.3 trillion spent on "too big to fail" companies. And now Geithner wants to spend 2.8 billion to bail out GMAC for the THIRD time??

Anything under 20BILLION is a "rounding error" for this administration and the folks in DC making our laws and passing them without our consent! Don't just blog or comment to one another! STAND UP, SPEAK OUT!! They can't vote up or down if you vote them entirely out of office.

Mary

November 3, 2009 10:30 PM

This tax credit is confusing. . .how on earth does it assist people with buying a home? It doesn't go towards the down payment. . . it doesn't decrease your monthly payment each month. . . after you close on the house your payments will remain the same each month for the life of the loan unless you refinance (which is expensive). . .your "purchasing power" doesn't increase because you don't even get the money until after you close on the house. . .therefore this credit is just people getting a huge fat check of 8000.00 to spend however they please? A fun extravagant vacation? CHECK! New wardrobe! CHECK! All new furnishings and appliances, CHECK! All with my HUGE refund check I just got! Kinda like the stimulus check of 200.00 we all got from Bush that was so criticized but on a MUCH larger scale. Makes pretty much no sense at all.

Kristina

November 4, 2009 03:00 PM

What is this limit of 5 years about????? I just sold my house a month ago...I lived there for 4.5 years! So I guess I'm excluded? We are looking for a bigger house as our family as grown, but according to this language we would not benefit from any tax credit....I'm glad the govt. can take my money, disperse it to whomever they want and then exclude me over some formality they came up with!! If you owned for less than 5 years or recently JUST sold - you should be pissed off, as I am. Either cut it off or extend it to everyone - where the HELL do they pull these numbers from??????

Adam

November 4, 2009 03:03 PM

I don't understand why there is a five year requirement. First time buyers have to stay in their home for at least 3 years. Existing buyers have to have been in their homes for five years!! What about the person who owned for four years??? NO logic.

cc

November 5, 2009 08:20 AM

We recently had to move (military). We only lived in our house for 3.5 years. We were completely happy to stay there, but because the demands of the military we had to relocate. We sold our house, and bought a new one. Are we eligible for the tax credit? No?, because we only lived in our house for 3.5 years.

GM

November 5, 2009 12:55 PM

It is not fair for people who bought their first homes in 2008 but before 2009. They have to pay back the $7500 tax credit for over 15 years or when they sell their house while those people who bought their first home in 2009 don't have to pay back the $8000 tax credit. IS IT BECAUSE THE OBAMA MORE GENEROUS THAN THE BUSH?

Rick

November 5, 2009 05:50 PM

I was lucky to know one of the sharpest must wildly succesful women in the Business. Nancy Torres young mortgage banker from Jersey City New Jersey. Most ethical person i know in the business built my commercial and residential real estate empire...
Now Obamah is going to screw everyting up... :)

JJ

November 5, 2009 11:11 PM

What does Consecutive Years mean? I purchased home march 2006. If I sell in march 2010, am I eligible? Do you count 2006, 2007, 2008, 2009, 2010 if Lived in house during those calendar years? That would be 5 years. Or is it being counted living march 2006 - march 2007, march 2007 - march 2008, march 2008 - march 2009, march 2009 - march 2010, which it would be counted as 4 years? Is it that vague to be interpreted in any of these ways? Can anyone tell me 100% which one it is?

JJ

November 5, 2009 11:16 PM

What does 5 Consecutive Years mean? I purchased home march 2006. If I sell in march 2010, am I eligible? Do you count 2006, 2007, 2008, 2009, 2010 if Lived in house during those calendar years? That would be 5 years. Or is it being counted living march 2006 - march 2007, march 2007 - march 2008, march 2008 - march 2009, march 2009 - march 2010, which it would be counted as 4 years? Is it that vague to be interpreted in any of these ways? Can anyone tell me 100% which one it is?

cm

January 2, 2010 09:39 AM

Still confused, what form do you get the tax break If I lived in the home for 5 yrs and have bills to pay how does that work?

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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