Homebuyer's Tax Credit Applies to Higher Income, Move-up Buyers

Posted by: Chris Palmeri on November 2, 2009

The Senate is expected this week to pass an extension of the credit that was originally going to expire Nov. 30. Buyers who sign a purchase agreement by April can now claim the credit.

The extension will apply to higher income buyers. Previously the credit was available to individual filers making $75,000 a year or less. For couples the limit was $150,000. The new income limit will be $125,000 for individuals and $225,000 for couples.

There’s also something in for move-up buyers. Previously you couldn’t claim the credit if you owned a home in the past three years. Now, if your last home was your primary residence for at lease five years, you can claim $6,500 in credit if you buy a new home. The new house can’t cost more than $800,000 though.

Just in time to kick Washington into action, the National Association of Realtors reported that pending home sales jumped 6% today. That’s the eighth month in a row of sales increases and the longest rising streak since 2001. “What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” said the association’s chief economist Lawrence Yun.

I’ve a written before about the role psychology has in home purchases. No where is that topic more relevant than in what we’re seeing with the tax credit. I participated in an Internet interview last week on the housing market on the Financial Fitness Show . Jim McQuaig, a mortgage broker in Reston, Virginia, said he recently completed financing for a woman buying a $430,000 home who said the $8,000 tax credit was the incentive.
Imagine that, one of the largest purchases of your life and you’re moved to do it by a tax credit worth less than 2% for the purchase price!

Reader Comments

kz

November 2, 2009 11:10 PM

These take breaks will artificially raise home prices and prevent them from seeking their proper level. Why is the government using taxpayer money to subsidize not just new but current homeowners?

JL

November 3, 2009 12:07 AM

Im glad to see the credit extended..but even more glad to see tha the arbitrary nature of who can qualify for the credit is also quite evident. This will make a class action suit (filed by previously denied homebuyers) against the Federal Govt and easy win. I was denied my credit under the previous arbitrary rules that now can be proven to be completely unconstitutional ..govt cannot arbitrarily bestow a benefit on a select number of citizens when all are taxpayers and equal under the constitution...this is explicitly prohibited in the Constitution. Lets see..@8,000 per transaction..how many transactions would have qualified for the credit under the new arbitrary rules that were unjustly denied? Perhaps some realtor out there can estimate this..its probably in the hundreds of millions $$. Can we get a constitutional lawyer to work pro-bono on this case (perhaps a homebuyer himself unjustly denied the credit)? Pls post here your replies. Thanks.

Lorena

November 3, 2009 7:18 AM

That will be great!
We are closing Nov. 15th but i think it would be a great opportunity for all the people that still pending on a closing date or start looking for ahouse now.

Getinet

November 3, 2009 10:03 AM

I develop property in Washington, and have been surprised as well by how much a small--2% credit in this case--can be the deciding factor in such a large purchase. Ultimately, however, buyers of homes are much more likely to focus on their cash outlay (ie downpayment) rather than the total cost of the home. In the case above, for a buyer putting 10% down, or $43,000...getting $8,000 back is like getting back almost 20% of the cash they had to save to buy the home. For FHA loans (which have grown in proportion) where the downpayment is as low as 3.5%, it is more than half the downpayment that they get back. From that perspective, the $8,000 is psychologically very significant, even for relatively expensive homes....

TJ

November 3, 2009 10:29 AM

Does anyone have advice for a new home buyer who did not qualify previously (make more than $75K) but will qualify at less than $125K? Should I move the closing back on the home I have contracted currently or should I move forward with it?

Macr

November 3, 2009 3:56 PM

That the same BS as cash for clunkers. I don’t want my tax dollars going to help someone else buy a house! Stop artificially inflating the market only because the real estate industry has such as strong lobby.

A. Wells

November 3, 2009 6:30 PM

Who are these people passing the laws? $6,500 on $800K house is just a noise in the negotiation process. They certainly don't need the money in any meaningful way. We need to get rid of every incumbent politician. There is no other way to send them a message. So what if a few good people will be lost, too. We cannot afford for this to go on.

David

November 3, 2009 8:15 PM

However $8,000 is more like 10% of the downpayment cost of a $430,000 dollar house. The downpayment is the primary expense at the time of purchase so its more important to a purchasers mind set.

with-a-z

November 3, 2009 9:56 PM

Now if they would just come out with a cash for clunkers program for home owners so I could do a move up myself!! My home is by no means a clunker, but I can't sell it for what I owe on it (heard that before?) - but would love to move if we could. And we can afford to move too! That's what's killing us! We want to move, want to buy, but if I can't sell what I have (and I won't rent it out) we are just stuck until it turns around enough. But how long will THAT be? So very frustrated.

Pro2ProNetwork

November 4, 2009 10:37 AM

It is very interesting to see how this tax credit has increased home sales in order to beat the deadline. I know many first time home buyers are on the same hunt to receive the tax credit. While the tax credit incentive can be helpful, home buyers should do their research before rushing into this huge purchase.

Bob Cacciola

November 4, 2009 12:47 PM

Will a first time "single person" purchaser (closed Aug 2009) be able to take tax credit due to increase to $125,000 ?

JOAN MESSNER

November 5, 2009 9:24 AM

GOOD ARTICLE...GOOD NEWS !
ARE THESE DISCOUNTS APPLICABLE TO
THE PUCHASE OF C0-OPS ?

KILO217

November 9, 2009 3:16 AM

Will the $6,500 tax credit apply to the construction of a new home that is a step up from your exhisting home??

jeff

January 24, 2010 8:16 PM

Does the income imitation apply to gross income or AGI?

Nick

February 23, 2010 10:57 PM

Talk about Fairness.....what a joke. If people that make under $125k qualify for the $8k credit why deny the same credit to those who made between $95k and $125k last year? Didn't we bare our share of the economy's revatilization by bying houses when nobody else would? I'm very disappointed at this administration

Nick

February 23, 2010 10:57 PM

Talk about Fairness.....what a joke. If people that make under $125k qualify for the $8k credit why deny the same credit to those who made between $95k and $125k last year? Didn't we bare our share of the economy's revatilization by bying houses when nobody else would? I'm very disappointed at this administration

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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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