As “Cash for Clunkers” (C4C) winds down this week it is clear that consumers are pushed off the fence to buy cars when given a financial incentive. Housing’s stimulus, in the form of a first time home buyer tax credit, is said to have been pushing home buyers off of the fence too.
The first time home buyer tax credit was first introduced in the Housing and Economic Recovery Act of 2008. The initial credit allowed first time home buyers, who purchased a primary residence in the United States in 2008, to claim a tax credit up to $7,500 on their 2008 federal tax return that was to be repaid in 15 installments beginning in 2010. First time home buyers must meet specific criteria to qualify for the credit (IRS.gov).
The tax credit was extended and expanded to include first time home buyer purchases in 2009. The expanded credit that can be claimed is currently up to $8,000, however does not have to be repaid. Home buyers can claim this credit in several ways. The current first time home buyer credit is set to expire (to qualify, the home must be purchased before December 1st) December 1st, 2009 (IRS.gov).
Some housing experts point to recent spikes in home sales as success for the first time home buyer credit. In an August 12th podcast, National Association of Realtors Chief Economist Lawrence Yun stated that there has been “consistent momentum” with the first time homebuyer credit such that there is pressure to expand and extend the program. Comparing the C4C stimulus to the first time home buyer tax credit, Dr. Yun explains that the effects of the C4C on the economy is temporary whereas the effects of the home buyer credits have a longer lasting effect on the economy and real estate market (Realtor.org).
As the window to claim the first time home buyer credit is quickly closing, there is strong support to extend and expand the current first time home buyer credit. In a June 10th press release (Isakson.senate.gov), Senator Johnny Isakson made a case to expand the current incentive. Senator Isakson stated; “The first-time homebuyer tax credit has made a difference. First-time home buyers used it and the market stabilized, but we don’t have a recession in first-time home buyers. We have a recession in the move-up market…”
Senator Isakson, expressing concern over the inability for “move-up” home buyers to buy and sell homes due to a lack of equity and liquidity, introduced bi-partisan legislation on June 10th. The bill seeks to expand the incentive to home purchases made in 2010, increase the tax credit from $8,000 to $15,000, and eliminate home buyer income caps. Basically, if the legislation passes, any home buyer would be able to claim the credit. Currently, the bill (S.1230) is in committee.
Other bills to extend the tax credit were introduced earlier this year in the House of Representatives. Among them, H.R. 1245 (introduced by Rep. Ken Calvert) also calls for an increase in a home buyer tax credit to $15,000.
It is clear that the current tax credit is effect to motivate first time home buyers to get off the fence. However, some experts state we cannot know the full effect of the incentive until we measure the data.
This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 24, 2009. Copyright © 2009 Dan Krell