Is the Home Buyers Tax Credit Extension Good News?

Last Friday, President Obama signed a bill to extend the $8,000 tax credit for first-time home buyers from November 30th to March 31st, 2010 and added a provision that will extend the credit to more potential buyers.

Originally slated as a credit only for first-time homeowners, the government has now extended the credit to home buyers who have owned a home for under 5 years and are looking to purchase another home before March 31st.

It sounds like good news to a lot of buyers who were rushing to buy homes before the November deadline.

But Why Did They Extend the Home-Buyer Tax Credit Another 4 Months?

To stimulate the spring housing market in 2010 and help homeowners who may be heading toward foreclosure right now.

The idea is to give first-time home-buyers a boost and strengthen the weak economy. If they give first-time, qualified buyers a big enough tax break, they’ll buy now, clean up some of the ghost town neighborhoods, and improve their own lives and long-range financial prospects. And it might help current homeowners in financial trouble to start the short sale process to eliminate their underwater mortgages and purchase homes with the help of stronger financing.

First-time home buyers are eligible for up to $8,000 on the tax credit, which is the same as the current credit. The new version of the bill creates adds a credit of up to $6,500 for homeowners who have lived in their homes for less than five years. But the new homeowner provision starts on Dec. 1, 2009.

What’s the Deadline to Apply for the Tax Credit?

The tax credits expire on April 30, 2010, but home buyers under contract by April 30 will be able to qualify as long as they complete the sale within 60 days and close on July 1, 2010.

Realistically, this is the third iteration of the home buyer tax credit in place since mid-2008. And it’s likely the last time it will be extended before it finally expires next spring. About 1.4 million first-time home-buyers have qualified for the credit through Mid-October, and the National Association of Realtors estimates 350,000 of them wouldn’t have purchased their homes without the credit.

Will the Tax Credit Help Home-Buyers in the High-End of the California Housing Market?

Not likely. The tax credit phases out for home buyers with incomes above $125,000 for single filers and $225,000 for married couples. Also, homes that cost more than $800,000 aren’t eligible for the credit.If you’re in this tax bracket and you’re looking to buy a home over $500,000, a $6,500 tax credit probably won’t make much a difference in your home buying decision anyway.

Overall, the tax credit is likely to generate only a modest further increase in home sales as only 5% of home-buyers have made use of the new tax credit to date.

If you would like to see how this tax credit will benefit you, just click on the link below and download the pdf:

2009-NAR-Issue-Brief-Homebuyer-Tax-Credit-Changes-1104-1107.pdf

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Sincerely,

Mark Shandrow
REO Broker-Associate
Shandrow Group
shandrowgroup.com