First-Time Homebuyer Tax Credit - Proceed with Caution!!!

The day erupted with excitement surrounding the latest developments on the federal first-time homebuyer tax credit, which provides up to $8,000 in tax relief to eligible buyers. This morning, the U.S. Senate apparently came to an agreement to extend the deadline for the credit that was initially enacted to stimulate home sales and slow the pace of decline in the housing sector. Minutes after the agreement was initially announced, headlines began surfacing in all sorts of media outlets, from major news sources like the Los Angeles Times to real estate blogs throughout the blogosphere. While it is undeniable that something happened this morning, what is less clear in stumbling and sifting through all the pronouncements is exactly what that something is.

To listen to many of the pundits and pontificators, including many well-intentioned agents who haven't thoroughly checked their facts, one might easily come to the incorrect conclusion that the extension is now the law of the land. Not so! Those who believe the extension is already in place need to brush up on their knowledge of the federal legislative process. In order for a bill to become federal law, it must pass both Houses of Congress and be signed by the President. This particular bill...is not yet a bill at all!!! What has been discussed and tentatively agreed upon is a concept - an outline at best. In order for that agreement to become law, it will have to be drafted in bill format (or added to an existing bill), debated and passed by the originating house (in this case, the Senate), debated and passed by the receiving house (the House of Representitives in our hypothetical scenario), returned to the originating house for concurrence in any amendments that might be made by the second house, and sent to the President for his signature. Assuming the President does not veto the bill in whatever form it ultimately assumes when it reaches his desk, it would then become law, subject to any effective date(s) specified in the bill.

For details on what actually transpired in terms of an agreement, read today's L.A. Times article. In short, as of the writing of this post, there is an agreement in concept among Senate leadership with the thought to add the measure to a bill already in the legislative pipeline - possibly the same bill that would extend unemployment benefit eligibility for an additional 20 weeks. The proposal would extend the tax credit deadline until April 30, 2010...sort of. Under current law, the purchase transaction would have to close by November 30, 2009 for the buyer to claim the tax credit. Under the agreement announced this morning, the buyer would have until April 30, 2010 to enter into contract and would be eligible to claim the credit as long as the transaction closes by June 30, 2010. The proposal would also extend a partial credit (up to $6,500) to existing homeowners who have owned their homes for the past five years and who are looking to buy again (i.e., 'move-up' buyers). For additional details on the proposed changes, read Luke Mullins' U.S. News and World Reports blog. To stay up-to-date on the most recent developments, feel free to visit the federal tax credit page on my website. Don't forget to bookmark it and share it with your friends and neighbors!

While it appears likely that the deadline will ultimately be extended, buyers and agents alike should proceed with extreme caution. Buyers, if you need the credit to afford your home, do not assume that you will have additional time to close the transaction. Current law makes the tax credit available through November 30, 2009. In order to claim the credit, you must either be a first-time buyer or must not have owned a home in the past three years. You must also meet income eligibility requirements and the transaction must be completed (escrow must close) by the November 30 deadline. Agents, do not succumb to the temptation to promise your buyers more time. Make sure you do not promise that which you cannot deliver. Feel free to visit my website for information on the tax credit as it currently stands. Alternatively, you can bookmark this blog post, which will be updated as new information emerges.

Ruth, a lender from Colorado, has provided a follow-up with additional information from the National Association of REALTORS® in her post entitled The Realtor that Cried Wolf, Wolf??.

11/3/09 UPDATE: On Nov. 2, the Senate took one more step toward enacting the deadline extension. By voting to invoke cloture on the amendment that contains the extension, further debate on the proposal was limited to a maximum of 30 hours, meaning that the Senate vote on extending the credit should take place no later than Wednesday, Nov. 4. For additional details on the path to finalization of the tax credit extension, see "First-Time Homebuyer Tax Credit - An Update."

11/6/09 UPDATE: On Nov. 6, 2009, the President signed the Worker, Homeownership, and Business Assistance Act (WHBAA) into law, extending the deadline to purchase a qualifying home from Nov. 30, 2009 to Apr. 30, 2010, expanding eligibility to include "move-up" buyers, and providing special benefits for members of the military and certain employees of the federal government. For details, including a description of new benefits for members of the military and a definition of "move-up" purchases, visit the 2009-10 First-Time Homebuyer Tax Credit Page on my website.