[Update Nov 2009] Following Congress approval, President Obama has signed off on the bill approving an extension of the $8,000 new home buyer tax credit until April 30th 2010 (with a phase-out by year end). Unfortunately new provisions in the extension are NOT retroactive. Here is a summary of the new and updated provisions and their impact on you if you have or are planning to buy a house:

- First-time home buyers who bought after January 1, 2009 (original date of credit term) and close before April 1 2010, would get the full $8,000. For homes purchased after April 1st 2010 to December 31st 2010 the credit is still available, but it's value would be reduced by $2,000 in each successive quarter until expiry at the end of 2010.

- The approved extension would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale.

- Income qualification limits: The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the original rules. However the higher income limits are not retroactive, and are only applicable for home buyers who purchase a home after Nov. 6, 2009. The existing income (MAGI) limits still apply to purchases on or before Nov. 6, 2009.

- *NEW* Current Homeowners looking for a new home could also qualify for a $6,500 credit if they have lived in their existing primary residence for at least five years. However they must have purchased the new home after Nov. 6th 2009 to qualify for this tax credit.

- Claiming the new home buyer credit: Unless you have already claimed it, the credit can now only be claimed when filing next year's tax return (in 2010) by using Form 5405. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. If you and your spouse claim the credit on a joint return (both of you must meet the income and past ownership criteria to qualify), each spouse is treated as having been allowed half of the credit for purposes of repaying the credit. So the total amount claimable is still only $8000 (up to April 30th 2010).

- The $8000 credit can still be used towards the down payment of a house bought in the credit qualifying period. You need to work with your lender to take advantage of this provision.

- Tax Credit Exclusions: Homes that cost more than $800,000 aren’t eligible for the credit and you must be over 18 years old to claim the credit. Those who sell their new home or stop using it as their main residence within three years would have to repay the credit. You cannot claim the credit if acquired your home by gift or inheritance OR if you acquired your home from a related person

- If two or more unmarried individuals buy a main home, they can allocate the credit among the individual owners using any reasonable method. The total amount allocated cannot exceed the smaller of $8,000 or 10% of the purchase price. Note: A reasonable method is any method that does not allocate all or a part of the credit to a co-owner who is not eligible to claim that part of the credit (I would go with 50/50 as a reasonable method if one person is not eligible for the credit)

- The purchase date is how you decide which credit you are eligible for. Only homes purchase from Jan 1 2009 to April 1st 2010 are eligible for the fully refundable $8000 credit. If you constructed your main home, you are treated as having purchased it on the date you first occupied it.

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The terms for extending the home buyer tax credit are still being finalized by the IRS and I will continue to update this article and encourage you to subscribe (free) via Email or RSS to get the latest news.

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[Update Oct 2009] Senate votes 98-0 to Extend and Gradually Reduce Home Buyer Credit in 2010

Senate leaders have overwhelmingly agreed to extend and gradually reduce the $8,000 first home buyer tax credit through 2010. Deliberations will now move to the House of Representatives. Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the home buyers extension to legislation extending unemployment benefits that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid. More than 1.2 million borrowers through Oct. 9 have claimed almost $8.5 billion of the $13.6 billion set aside for “first-time” home buyer tax credits this year. The program is aimed at easing the worst housing slump since the Great Depression and has been credited with boosting the economy and stock markets over summer. See the previous update below for the various bills under consideration to extend this tax credit.

Lawmakers are under pressure from real estate agents, mortgage brokers and homebuilders to extend the $8,000 credit before it expires Nov. 30. However, they are also facing pressure from governance groups and recent IRS reports claiming widespread fraud around claims for this lucrative credit. The Internal Revenue Service has identified 73,799 claims totaling almost $504 million that may not be from first-time homebuyers. They also found that 582 taxpayers under 18 years old and ineligible to buy a home claimed almost $4 million in credits. Children as young as 4 years old received the credit, Treasury Inspector General for Tax Administration J. Russell George told a House panel.

The bill to extend the credit contains the following provisions:

- First-time home buyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

- The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

- Existing Homeowners could qualify for a $6,500 credit if they have lived in their primary residence for five years

- The homebuyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

“Relative to current law, this is better. But it’s worse than people are expecting,” said Tom Gallagher, head of policy research in the Washington offices of International Strategy and Investment Group, an independent research firm. “This is a four-month extension and a nine-month phase-out.”

The proposal was intended to counter one by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Senator Johnny Isakson, a Georgia Republican and former real estate agent, to extend the full $8,000 credit through next June and to expand it to all couples earning $300,000 or less. The Baucus-Reid proposal would continue limiting the benefit to first-time homebuyers, Lachapelle said.

The terms for extending the homebuyer tax credit are still being negotiated. House Speaker Nancy Pelosi, a California Democrat, is waiting to see the final Senate agreement before deciding whether to support it. “Generally, we do support extending it,” Pelosi spokesman Nedeam Elshami said. “But it’s premature to say anything until we see what action the Senate takes.”

I will continue to update this article and I encourage you to subscribe (free) via Email or RSS to get the latest news.


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[Updated Oct 1st] Given it's success in stabilizing the US housing market, Congress is considering extending the first-time homebuyer tax credit for up to a year to further boost the real estate market. The $8,000 first-time homebuyer tax credit - covered in detail here - runs through Nov. 30. Some lawmakers also want to extend the amount of the credit to $15,000 and want the extension broadened to include all homebuyers.

The $8,000 tax credit (funded under Obama's 2009 economic stimulus program) to qualified first-time buyers has directly resulted in 357,000 home sales between Feb. 17 and Sept. 15, data released yesterday show. Thus far, 1.4 million taxpayers have claimed the credits, the IRS reported. Nearly 1 in 5, or 18 percent, of prospective first-time homebuyers who participated in a Zillow survey said extending the tax credit would be the primary influence on their decision to buy a home before the end of 2010.

Realtors, bankers and homebuilders have joined in the push, starting a campaign that encourages Congress to extend the program for one year with the tag line: "Don't Let America's Real Estate Recovery Expire." Executives including Fannie Mae's Michael Williams and Hyperion Partners LP's Lewis Ranieri have attributed improvements in home sales and prices to the credit, and Isakson said he is worried the market may suffer without it. White House spokesman Robert Gibbs told reporters today that President Barack Obama's economic team is looking at the tax credit and "evaluating the impact" on new home sales.

The extension of the $8,000 U.S. homebuyer tax credit is gaining support in the Senate as bill sponsor John Isakson said he is rallying lawmakers to continue a program that helped boost home sales by more than 1 million. Isakson's legislation would extend the program through the end of 2010, almost double the credit to $15,000 and remove restrictions that prohibit individuals who already own homes or earn $75,000 - $150,000 for couples - from getting the tax break. The bill, first introduced in June, failed in a 47-50 Senate vote in August.

There are over 15 bills in congress related to the housing credit with the latest introduced on Sept. 17, that's likely to zip through the House and quickly move to the Senate. House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) sponsored the bipartisan Service Members Homeownership Tax Act (H.R. 3590), which would extend the credit 12 months for thousands of military, Foreign Service and intelligence agency personnel who have been posted abroad in 2009. Here's a summary of the other bills:

Senate Bill S1230 – the Home Buyer Tax Credit Act of 2009 – introduced by Senator Johnny Isakson (R-GA), proposes a non-refundable tax credit up to $15,000, that can be split equally over two years, for all primary residence purchases – not just purchases by first time home buyers.

House Bill HR 2619 introduced by Representative Kenny Marchant (R-TX) proposes to extend the existing $8,000 tax credit to July 1, 2010 and add a tax credit of up to $3,000 for homeowners who refinance.

HR 2606 – the Home Buying Credit Expansion Act introduced by Representative Eddie Bernice Johnson (D-TX) proposes to remove the first-time home buyer requirement and would allow allowing all principle residence purchases to qualify for a tax credit. The bill would also extend the original bill through Jan 1, 2010.

HR 2801 – the Home Ownership Move the Economy (HOME) Act introduced by Representative Howard Coble (R-NC) is similar to S1230 discussed above but would extends the credit to Jan 1, 2011.

Critics who oppose extending the first home buyer credit say that all the credit is doing is shifting future demand closer to the present. This is just hiding the fundamental issues with the housing market which is still facing record foreclosures and under severe price pressure in a number of area's around the nation. The cost of extending the credit is also substantial with Zillow projecting 1.86m homebuyers stand to take advantage of the program. And, if all buyers took the full tax credit, extending the program could cost an additional $14.86bn - which would lead to higher taxes down the road in order to recoup the credit costs. This makes the credit a hard sell politically given the federal budget deficit is already wallowing in a record amount of red ink

As discussed before, the challenge in extending the home buyer credit before December 1st is Congress's heavy load of higher-profile, pressing issues (like health-care reform) that will get attention before anything else. However the extension of the credit has gained a lot of media attention and more likely than not we will know if the credit is extended or not by the end of next month.

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