Luxury Real Estate

Courtesy of: Jim Walberg of Caribbean Islands Realty

Tax Credit Update From Jim Walberg: Last week I sent out the alarm for home buyers to take action or lose out on the Federal tax credit that is ending November 30^th. Today Senate Majority Leader Harry Reid said that the Senators have actually agreed to extend the First Time Homebuyers Tax Credit past November 30^th. The proposal on the table has the $8,000 credit extended until April 30, 2010. PLUS, a $6,500 tax credit would be given to homeowners who have lived in their house for the past five consecutive that purchase their next primary residence. The credit would be available to individuals who make less than $125,000 a year, or couples who make less than $225,000. This is $50,000 to $100,000 more than the last income ceiling in order to qualify. A strategy that is being proposed in order to have it accelerate through Congress is by attaching the bill to the one extending unemployment benefits – a smart move by Senator Reid.

The green light was given to Senator Reid and Congress from President Obama when the administration asked Congress to give future homeowners more time to receive the tax credit. Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan stated today in a joint statement, “We welcome efforts taken by Congress to extend the first-time home buyers tax credit for a limited period. This credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide.”

Moodys Economy.com’s chief economist, Mark Zandi, believes that the original tax credit that is to end by November 30^th will have created up to 400,000 home purchases when all the smoke clears. The National Association of Realtors, and the Home Builders Association

have both been stating that failing to extend the tax credit would seriously impact the recent signs of stability in the housing market. Just yesterday, the Home Builders Association blamed weaker new home sales because of the expected end to the first time homeowner’s tax credit at the end of this month.

Not only is the deadline proposed to be extended to April 30, 2010, but the rules of what a “deadline of April 30, 2010” means has been changed. The current tax credit rules states that the home must close escrow by November 30, 2009. That is why there has been such a rush the past four weeks to complete the loan process for any purchases that qualify for the credit so they can close escrow by the end of the month. It has been a mad house at all of the mortgage lenders offices. The proposed extension states, “A buyer must have a sales contract on a home by April 30^th to be eligible, but gives them an additional 60 days to close the escrow on the home.” This actually means that the deadline to receive this credit is June 30, 2010 for any purchases that qualify!

The BIG NEWS regarding this proposed extension is the expansion of it to current homeowners who are move-up buyers. This is THE key group of home buyers that are critical to the recovery of the housing crisis. Also, with expanding the amount of income a person can earn in order to qualify, it will encourage a host of buyers into the game. So, both first time buyers and move-up buyers can use this tax credit as long as the home is no more than $800,000. They can also take the tax credit on their 2009 tax return even if it is purchased in 2010. Remember, that the tax credit does not have to be repaid if the buyer lives in the home for three years or more.

There is a BIG downside to extend the tax credit. Mark Zandi has estimated that the current tax credit has already cost the Feds over $10 billion in lost income taxes. He believes the current proposal will cost more than $10 billion in additional income tax loses. There are critics of the tax credit that say the Feds have paid $43,000 for every additional home sale the past two years! Zandi does concede that the proposed bill to extend the tax credit would create a significant amount of home sales. But, is the trade-off worth it. All aspects of the economic recovery are fragile today. If this credit is not extended it may set us back a year or two with any further recovery possible. CLICK HERE for more information on how this tax credit could benefit you. Until next time…your East Bay lifestyle detective remains on duty.