The Proposed Extension and Modification of the $8,000 Homebuyer Tax Credit

The Proposed Extension and Modification of the $8,000 Homebuyer Tax Credit

November 4, 2009

Today, the Senate passed legislation to modify, expand and extend the homebuyer tax credit by a vote of 98-0. This bill must still be passed by the House of Representatives and then signed into law by President Obama, but the overwhelming consensus is that this will happen and happen quickly, perhaps by the end of this week. The House of Representatives does have the ability to change the bill before making a final vote, but the meat and bones of the legislation is likely to remain intact.

THE FIRST TWO HOMEBUYER TAX CREDIT PROGRAMS:

There have been TWO versions of the homebuyer tax credit thus far. The first, which initially applied to homes purchased between April 9th, 2008 and July 1, 2009, was essentially a $7,500 tax-free loan that had to be paid back over the course of 15 years at $500 per year. If the home was sold before the 15 years, then the remainder of the tax credit was recaptured in most cases.

Then the current $8,000 tax credit for first time homebuyers was passed into law as part of the stimulus plan in February. This new law applied to homes purchased between January 1 and November 30th of this year. Homebuyers that purchased a home after January 1 but before the new law was passed were allowed to claim the revised tax credit. In addition to the increase, the new plan did not require repayment of the $8,000 unless the home was sold in the first three years.

THE PROPOSED NEW HOMEBUYER TAX CREDIT PROGRAM AS PASSED BY THE SENATE TODAY WOULD:

• EXTEND THE CURRENT $8,000 TAX CREDIT FOR FIRST TIME HOMEBUYERS to June 30, 2010 with a stiplulation that they must enter into a written, binding purchase contract on or before April 30, 2010.
• CREATE A NEW TAX CREDIT OF $6,500 FOR "MOVE-UP" BUYERS who have occupied their current home for at least five out of the last eight years.
• ALLOW MILITARY PERSONNEL who have been deployed overseas by more than 90 days in 2008 or 2009 to claim the credit until APRIL 30, 2011.
• Cap the price of a new home at $800,000 in order to claim the tax credit. The current law does not have a cap on the purchase price.
• RAISE THE MAXIMUM INCOME LIMITS from $75,000 to $125,000 for single homebuyers and from $150,000 to $225,000 for married homebuyers.

There will most likely be some other minor changes that haven't been fully explained as of yet. Again, it's important to remember that this HAS NOT BEEN OFFICIALLY PASSED INTO LAW AS OF RIGHT NOW (November 4, 2009).

In addition to these changes, the IRS will be given greater authority to verify the legitimacy of each tax credit claim rather than waiting for the results of an audit. There have been allegations that a significant amount of fraud has occured under the current program.

At one point, there was even speculation that many lawmakers would vote against the bill because of fraud concerns. The current tax credit doesn't require taxpayers to show proof that they purchased a home. The new law would require homebuyers to attach a certified copy of a HUD-1 statement in order to claim the tax credit. The HUD-1 statement is normally the first form that buyers sign at closing and should be kept in a safe place for those that plan to claim the new tax credit.

So stay tuned for updates as they occur. The consensus is that this will likely be passed by the House and signed into law by President Obama by next week at the latest.