The Real Story…
News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth
Tax Credit Extension & Expansion
The First-Time Home Buyers Tax Credit is set to expire November 30th. While the recent reports of fraud and abuse by some has given the tax credit a bit of a black eye, it’s overall impact on the housing and jobs market has been positive albeit insufficient to negate the other negative elements of the economy. Anyone wishing to take advantage of the existing $8000 tax credit that is not already under contract will have a most difficult time of closing a loan on a home in time to take advantage of the program.
There will be an important vote in the Senate this week on the housing tax credit provision. The “Dodd-Lieberman-Isakson” amendment would extend the existing First-Time Buyer Tax Credit to June 30, 2010. It would expand the credit to any homebuyer and raise the income limits to $150,000 ($300,000 for joint returns). The amount of the tax credit would remain at $8,000.
Under additional provisions in the Dodd-Lieberman-Isakson amendment, taxpayers would be able to claim the credit on purchases completed in 2010 on their 2009 income tax returns. The amendment maintains the provision that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order.
Why it is needed:
• The housing market remains fragile. The market has improved and prices have stabilized in many areas, but the market has not fully corrected. Retaining the credit sustains that recovery.
• The tax credit has been effective.
- NAR research suggests that as many as 355,000 sales this year can be directly attributed to the availability of the credit.
- One prominent economist attributes 400,000 sales to the availability of the credit.
• The tax credit stimulated market activity.
- The volume of housing sales has improved steadily every month since the credit was enacted.
- The credit pulled people from the sidelines and created some momentum that had been absent.
• Home sales continue to stimulate economic activity.
The economy will never fully recover until housing markets fully recover. Thus, the stimulus the credit provides is still needed. NAR estimates that every sale generates approximately $60,000 of additional economic activity.
Prospects for Passage: At this point the prospects are good for extension of the tax credit. There is real concern in the Administration about the strength of the economic recovery. Treasury Secretary Geithner was quoted in the November 2nd Business Week magazine stating: “we’re not going to make the mistake many countries made in the past of putting the brakes on too early and creating the risk of a weaker recovery with even higher levels of unemployment.”
On the negative side, the stories about fraud in the tax credit program (e.g. children and current homeowners receiving the tax credit) and concerns about the program cost obviously do not help.
While the industry trade associations, such as The National Association of Home Builders (NAHB) and the National Association of Realtors (NAR), are making a major push for the expansion of the tax credit to all homeowners, it appears unlikely that it will be expanded beyond first-time homebuyers.
I will keep you apprised of its progress.
