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It looks like the First Time Home Buyer Tax Credit may be sticking around a little longer than originally planned. There are still a few questions regarding amendments requested by the Senate Republicans, but if all can be smoothed over, the credit will be extended until April 30.
Introduced last February as a means of kickstarting the sluggish housing market, over 1.2 million borrowers have claimed $8.5 billion out of the original $13.6 billion allocated for the credit. Did the tax credit do what it was intended to do? Depending on which economist you speak to, an estimated 150,000 to 400,000 home sales were the direct result of the Home Buyer Tax Credit.
According to the latest proposed bill, the revised tax credit will contain new and improved features to reach a larger cross section of potential home buyers as well as extend the deadline to encourage more potential buyers.
Some of the features of the new Home Buyers Tax Credit include:
Deadline for current credit: Home buyers must close the deal on a home purchased in 2009 by November 30/09. As long as they live in the home for at least three years, the credit is not repayable.
Deadline for new & improved credit: Home buyers must purchase a new home by April 30, 2010, but as long as they were under contract by this date, would have up to 60 days to close the deal.
Eligibility and amount of current credit: First time home buyers are eligible for up to $8,000 in the form of a non-repayable tax credit. When claimed on a tax return, it reduces the amount of tax payable and results in a refund for the balance.
Eligibility and amount of new & improved credit: Same as above, however there is a new component that allows an additional $6,500 credit for those who have lived in their homes for five of the last eight years – thus not restricting the benefit to first time home buyers.
Those buyers with incomes exceeding $125,000 for singles and $225,000 for married couples are not eligible. Homes valued at more than $800,000 are also ineligible.
Fraud protection: As with any new legislation, there are those who attempt to take advantage or exploit. Thousands of false claims were received from children and teenagers. In the new and improved credit, applicants must be 18 years of age or over to apply.
Whether these new changes will make a difference in the housing market is up for debate. Some feel that offering it up to those who already own homes, isn’t really doing anything to reduce inventory since they will only be selling one home to buy another. However, it may encourage the fence sitters to take the initiative and invest.
According to Mark Zandi, chief economist at Moody’s Economy.com, he is much more optimistic and believes, “The tax credit is not a very efficient tax cut, but not extending it would do significant damage to the still fragile housing market.”
Many in the real estate industry believe that extending the tax credit will help to sustain any momentum gained in home sales and carry it over into the critical spring buying season.