Even though late today, President Obama called the delay to the new stimulus plan “inexcusable“, it appears as if the stimulus package will pass in some form relatively soon.
One important piece of the plan to anyone who is thinking of buying a home is the $15,000 tax credit for new home buyers along with forgivness of the repayment of the $7,500 tax credit for anyone who bought a home under the currently-in-place plan.
Although nothing has been passed officially into law yet, here are a few of the key items of interest related to real estate in the stimulus bill:
- The $15,000 tax credit can be taken over one year or spread over two years
- The $15,000 tax credit doesn’t have to be repaid
- The $15,000 tax credit will apply for anyone who buys a home - not just first time home buyers
- The $15,000 tax credit is a credit - not a deduction: meaning you will get the full $15,000
- The $15,000 tax credit is the lesser of $15,000 or 10% of the purchase price of the home
- The $15,000 tax credit will be allowed for homes that are bought within one year of if/when the bill is passed
Will this $15,000 tax credit “fix” everything that is currently wrong with today’s real estate market?
No.
But I don’t see how it could hurt-putting money directly into people’s pocket for buying something has shown to be effective in the Auto industry to drive sales - maybe it will work in the real estate industry as well?
For the most recent updates on the bill and for detailed information, The Phoenix Real Estate Guy has done a nice job of presenting a “level 201″ outline of what the $15,000 tax credit could mean for the real estate market - and to consumers alike.
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Comments
52 Comments so far
steven
I wanted to clarify, when you say the credit will be allowed for homes purchased within one year of when the bill is passed, does that include within 1 year BEFORE it’s passed or only within 1 year AFTER the bill is passed? Reason I ask is that we will be closing in a few weeks and I wanted to know if we will qualify.
Thanks!
Steven
Justin McHood
@Steven,
Thanks for commenting!
My understanding is that the $15,000 credit applies for homes bought within one year of when the bill is passed.
If you buy a home before the bill is passed, you would fall into the $7,500 tax credit category - not $15,000.
Also, keep in mind - nothing is final until the bill is signed.
daniel
who qualifies i just bought a house and put 10,000 dollars into it to make it livable for my family i make 40
Joe
You wrote, “One important piece of the plan to anyone who is thinking of buying a home is the $15,000 tax credit for new home buyers along with forgivness of the repayment of the $7,500 tax credit for anyone who bought a home under the currently-in-place plan.” So the old $7500 which was an interest free loan, now wouldn’t have to be paid back?
-Joe
Justin McHood
@Daniel,
I don’t know if I have *enough* information to answer your question - but here is my best shot:
In order to qualify for the $15,000 tax credit you need to have bought the house after the bill is passed and within 1 year. If you already bought the house, you would be eligible for the $7,500 tax credit but not the $15,000 one.
If this didn’t answer your question, you can contact me directly or leave another one for me here.
@Joe,
Thanks for stopping by and asking a question!
Although the bill hasn’t passed yet, the provision making the “old” $7,500 tax credit that was a tax-free loan a $7,500 tax free credit is in the current version.
Wait until the final version passes before “taking it to the bank” though.
Susy P
HOLD ON EVERYONE! We have to wait until the details are announced and read the fine print. From what I understood after reading the ammendment myself is that the credit is limited to your tax liability. In other words, you can take the credit up to the amount of your tax liability for two tax years. I know it sounds confusing….see the link below and read page 3 “LIMITATION BASED ON AMOUNT OF TAX” Looks like the repuplicans are looking out for the middle class….NICE!
http://isakson.senate.gov/Amdt_106.pdf
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Justin McHood
@Susy P,
Thanks for your comment - and I think you bring out a great point:
“We have to wait until the details are announced and read the fine print…”
Well said!
Justin
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skinny
It would be so much better if people who are TRYING to buy a home could take the credit (to help pay closing costs, down payment etc…). If someone wound up not buying a home, they would have to repay and pay a penalty.
Doing it that way would allow so many people to buy a home and would really stimulate the market.
Mary
You forgot one very major point. If you don’t owe $15,000 in taxes, you don’t get $15,000. This is different from the existing $7,500 credit. Hardworking Americans with lower tax liabilities will get less than the $7,500 that they were originally promised.
This version is better for higher income people and worse for lower income families.
Susy P
Mary, you said it best….”This version is better for higher income people and worse for lower income families.” JUSTIN, I’m still confused about what will happen to those who already claimed the $7,500 credit. What about those who didn’t claim it because they didn’t want to owe the gov’t even though it’s interest free? I haven’t been able to find the original bill online to reference while I read the ammendment.
skco
I think, the people (I am amongst those) who bought after implementation of previous stimulus feels cheated. Probably those who are eligible for previous stimulus should have waited and those who are planning to buy (due to new stimulus) should wait more, because who know congress may enhance it to 30k within next six months and so on and on till they start offering homes for free!! Those who bought the homes during previous stimulus should write to their senators/ congress persons to make this stimulus retroactive.
Justin McHood
@Skinny
Thanks for stopping by and commenting.
I have no idea if your idea was anywhere in any draft - and not only that, I have no friends in the US legislature or I would pass on your suggestion.
I like it and think it might work - but I have no idea who to tell about it. If you are reading this and are named Barney Frank please consider this as an option.
Unfortunately, I am stuck reporting on what is being done, not actively making sure stuff gets done in this situation.
Justin
@Mary
Thanks for commenting.
I don’t know the answer to the question of “what if you don’t have a 15k tax liability — do you get a refund”?
But I am pretty sure that in its current form, the $15k tax credit is able to be spread out over 2 years - so $7,500 each year.
Another situation to wait to see what the final version of the bill is when it passes and then ask this same question — because it is a very good one!
******* Disclaimer *******
Oh, and because I am “just a loan officer” please don’t take *anything* I say as tax advice - I am officially not qualified to give tax advice and have to refer you to your CPA.
Justin
@Susy P
Thanks for commenting.
Once the final draft version of the bill comes out and is passed - that is probably the best time to answer your question. Up until the final version is passed, anything can happen.
As it currently stands, for people who have claimed the $7,500 credit, it will become a “credit” and not a “loan”. For those who didn’t claim it - I don’t know.
One of my friends, mentors, wicked smart and all-around-nice guy is Jay Thompson (aka The Phoenix Real Estate Guy) and he has been tracking this whole legislation process closely. You may be able to find a link to the most current version on his site:
http://www.phoenixrealestateguy.com/
******* Disclaimer *******
Oh, and because I am “just a loan officer” please don’t take *anything* I say as tax advice - I am officially not qualified to give tax advice and have to refer you to your CPA.
Justin
@skco
Thanks for commenting.
I think it is completely understandable how people who bought under the previous stimulus plan can feel cheated and felt like they should have waited.
The silver lining of the dark cloud may be that if the bill passes in its current form, your $7,500 “loan” will turn into a $7,500 “credit” that you don’t have to pay back.
Hopefully that will help brighten it a little.
And if it doesn’t…
Just think of all of those people who bought a home in 2006 who are now under water and can’t do anything.
Oh, and please don’t kill the messenger! I am just trying to point out the positives in a somewhat mostly negative situation.
Justin
David
What if you are in the middle of constructing a house with a construction loan? My construction loan started in December 2008 but doesn’t convert to a permanent loan until construction is finished next summer. Does this mean my purchase qualifies for the tax credit, since I don’t technically buy the house until it is complete?
ali cat
i wanted to know if new construction counted at all,even if it is started this year,before the stimulus and completed after the passage of the stimulus.
pat
i read the ammendment and it says after or before one year from the ammendment being passed. doesnt that sound like you get the 15000 from any point before or after it is passed.
ryan
Would someone qualify for the 15000 tax credit if they are building a home with a construction loan?
thanks
Ryan
Justin McHood
@David, @Ali Cat, @Ryan,
Thanks for stopping by and commenting.
I don’t actually know what it means for homes that are considered “new construction” - but I will be sure to research and post once the bill becomes law.
Great questions!
Justin
ACD
The tax credit is a deduction, so you might not get the full $15,000.00. From Wall Street Journal:
There are some big differences between those two versions. The Senate version is nonrefundable, meaning you can only receive the credit if you owe federal income taxes. The existing credit is refundable, meaning you get a check from the government even if you don’t owe income tax. And the current credit applies to first-time home buyers, defined as anyone who hasn’t bought a house in three years. The Senate version is open to existing homeowners.
The proposed tax credit is nonrefundable. What does that mean? You can only receive the credit to the extent that you owe federal income taxes. The Senate proposal would give home buyers two years to claim the credit, so buyers could claim a $7,500 credit in 2009 and a $7,500 credit in 2010. A family of four that makes less than $82,000, for example, could have a tax liability of less than $7,500 and they would not receive the full value of the credit.
Heather
I am in the process of buying a house and might close this week….depending on if the paperwork gets done in time. Has this passed yet..I know Senate agreed or something but I do not quite understand this. They are saying “yes” but we have to wait for it to be signed?? So when is this going to be..anyone know? And so if I was to close this week and it passes next Tuesday I miss out? Just trying to understand… One more question…this is just a credit as in another deduction to make your taxable income lower? Or it is like a child tax credit where you receive the money from the government and it is yours to spend? Thanks sorry so long
kristin morgan
Does the new 15,000 tax credit apply to new construction? We have been waiting to build and want to know if this is the right time?
Kristin
Brad
Also would like to know if new construction would be covered under this bill. Guess we’ll wait and see if it passes first.
CHRIS
COPY AND EDIT THIS LETTER, SEND IT TO THE STIMULUS CONFERENCE COMMITTEE (EDIT IT TO YOUR SPECIFIC SITUATION):
Dear Senator :
I write today to thank Congress for its hard work on a much needed stimulus package and to express my concern about the $15,000 tax credit for home buyers.
Last week, Senator Isakson’s amendment to the stimulus replaced a $7,500 refundable tax credit with a $15,000 non-refundable one. The amendment is designed to encourage home purchases by higher-income households with a reduced risk of default. What the amendment fails to do is encourage purchases by those of us who are responsible and credit-worthy, but whose tax liability is nowhere near $15,000. Even the provision that allows tax payers to spread the credit evenly between two years is insufficient, as many of us have liabilities that are still only half the allowable credit. To make this incentive truly work for the American people and the American economy, the $15,000 credit must be made fully refundable to credit-worthy homebuyers at or above a certain income level.
In my own case, I work in the education field, which is not well known for its high salaries. Despite this, I have waited and saved been frugal with my spending for some years so I might purchase a home. In March, I will close on a foreclosed property in my hometown. My new home will need much work, as many foreclosures do. In most cases, the purchase of a home is the largest investment an individual will make in his or her lifetime. The spending that goes with it – spending for furnishings, improvements, renovations, maintenance, and appliances – infuses the economy with thousands of dollars per home.
Passage of the current bill will reduce my tax refund by $3,500 over the current incentive. That doesn’t make me excited to go out and spend. I could only dream of making enough money to recoup the entire credit in this bill, but what does it say to give a full $15,000 refund to someone making $122,000 a year, but less than a third of that amount to someone like me? Does that individual need the money more? Will they actually spend much of their refund? Is it sending the right message to the true middle class? I’m not sure I can answer those questions, but I know that if Congress gave $15,000 to an individual making $45,000 a year, they would put it to good use!
By making the $15,000 credit fully refundable would allow me and others like me to stimulate the economy with purchases of furniture, equipment, hardware, and create jobs in areas like maintenance, pest control, landscaping, construction, plumbing, and contracting. In my home alone, there is a laundry list of improvements that need to be made, totaling nearly $17,000. By refunding Senator Isakson’s tax credit, the entire amount would be circulated into the economy. Without it, me and homebuyers like me will likely stash what little we qualify for away.
Many see this credit as a windfall for undeserving or wealthy homebuyers. Currently, it is. By refunding the entire portion, it really becomes a windfall for the sectors of our economy that need it most. Help us to improve our lives while improving the economy by making the $15,000 homebuyer’s tax credit refundable.
Thank you for your consideration,
Justin McHood
@ACD,
Thanks for stopping by and commenting and thanks for sharing that information. We will have to wait to see what is in the final version before we know for sure what the bill says.
@Heather,
Thanks for stopping by and asking a question! It has not passed yet, so nothing is final.
@Kristin Morgan,
Thanks for stopping by and asking a question - I don’t know. We will have to wait for the final version to pass and then see how it applies to your situation.
@Brad,
Thanks for pointing out that we just need to wait to see what passes. The most popular question by far is “how does this apply to new construction?” so many people are waiting on the answer.
@Chris,
Hmmm. I don’t know if emailing your congressman will have any impact on this bill, but maybe? Certainly anyone who wants to can copy and paste it and maybe someone won’t just hit “delete” when they get it — I have no idea though.
Thanks All,
Justin
Shawn
Hello, I have a question. I have a primary residence but I’m thinking of buying another house (a foreclosure) that I have found that is a pretty good deal. I don’t know what I’ll do with this house, whether I’ll rent it or resale it, but I’ll probably buy it. Will I qualify for the tax credit even though this will basically be an investment property? Thanks…
Lidia
Help me understand one thing…since the 7,500 is still in effect is it still for first-time home buyers only, or does it apply to any home purchases made between April of 2008 and June 2009?
Since I just closed on my house (last week to be exact), my understanding is that I wouldn’t qualify for the 15,000 so I was hoping to catch a bit of the 7,500 action, but because my husband owned a house in the last 3 years I don’t think I will even get that! Does it matter if I bought the house in my name only? and that we only got married 6 months ago? I’m kind of bumming because those numbers got my hopes up and now it looks like I won’t qualify for any of it!
They should either make the 15K retroactive or have less restrictions for the 7.5K so people that already contributed to helping the mortgage market will get something out of it too!
Mike
I am refinancing my house with my new wife in my name and her’s. Currently the mortgage was in my name and my friends. Will we qualify, since techinically she we are buying a home and transferring the deed? Please help, I have looked everywhere and haven’t found a good answer
sheri
what tax credits do we get the ones that still struggle keep up our payments did not run out of the house and we are not inforclouser
are we getting any thing except a pat on the back .. I pay my house and cant afford health insuance so if i get sick then what ??
I own more than mine is with should i just hit the road too ,,
stuck in a house in florida … sheri
not to mention my daughter died in 07 ,she had no health insurance so was turned away for months no money no help and now her children have no mother ..
John
My wife and I are wanting to put our house up for sale and move into another house out of state. Being a current homeowner, are we able to use this $15,000 credit towards our second home. Thank you for your time!
Justin McHood
@Shawn,
Good question! My understanding is that the way it currently stands, the only way to qualify for the tax credit is to have it be your *principal residence*.
(Thanks Phoenix Real Estate Guy)
http://www.phoenixrealestateguy.com/Final-Senate-version-of-15000-home-buyers-tax-credit.pdf
That said, I wouldn’t make any final decisions until the bill is actually passed into law - then see what the final version says.
@Lidia,
Thanks for commenting - to provide a “safe” answer to your question - wait until the final bill passes and then it should cover your situation clearly.
@Mike,
Thanks for commenting. Off the cuff, my first guess would be “no, you won’t qualify because you already own the house and are just adding someone to the loan and title” but you will want to wait until this is passed and then look into the details about *what actually qualifies as a new home purchase*.
@Sheri,
Thanks for taking the time to comment. I am sorry for your loss. Although you may not get any tax credit for buying a new house, possibly other parts of the stimulus bill will help you in your situation. Wait until the final version passes - you may find some relief somewhere.
@John,
Thanks for asking a question - my understanding according to the most recent version (remember, nothing has passed yet) is that as long as it is your *primary residence* it will qualify for the tax credit (see the top of page 2 — and special thanks to The Phoenix Real Estate Guy)
http://www.phoenixrealestateguy.com/Final-Senate-version-of-15000-home-buyers-tax-credit.pdf
Again - wait until the final version passes before you make any final decisions.
Justin
Noah
Me and my wife make less that 60K a year combined. If we buy a 100K house, would we be able to get 10K back on our 2009 taxes. We claimed 0 status and will be getting a return of $2500. Our payment to the Federal Government was $6600. Will we get the 10% or will we only get a credit back for the $6600 we paid this year?
Noah
Correction 2008 taxes filled in 2009.
New homebuyer
First, let me begin this comment by encouraging everyone to use Chris’s comment, above, as a form letter to send to senators. He or she (sorry, Chris!) is exactly right: this credit DOES NOT help average income homebuyers, and the problem is precisely that the newly proposed credit is non-refundable. For Noah (above), this means that you and your wife (like me and my husband) likely won’t get a nickel from the senate’s version of this tax credit. As I understand it, the current version only applies to taxes that you owe come April–not to the taxes you have paid throughout the year. For those who, like Noah, are getting a return, the senate’s version (again, as I understand it) will do absolutely nothing at all.
This new credit will *not* help middle-income people like me and my husband, either, who have just bought a house. Because the version that passed in the senate is *non-refundable*, most middle-income Americans simply cannot benefit. Those who do owe tax and buy a house will be able to claim only the amount commensurate with the taxes they owe. Thus, if you owe $2,000 in federal tax and buy a house, you will owe no taxes–but you will get nothing else. Under the current, *refundable* plan, you would receive a check for $5,500 in the same situation.
I have read the senate version of this proposal, and I am hopeful that when my husband and I file our taxes, we will still be able to claim the current (and vastly better and more just) version of this tax credit. Who needs help, after all: the couple (like us) starting out, or the wealthy, well-established businessperson (who probably already has a house he or she won’t want to try to sell in this market, anyway)? Paul Krugman has called this the bill that encourages the wealthy to flip their houses–-and he’s right. This portion of the stimulus package won’t help the economy, and it won’t help most homebuyers, either.
I am frustrated and disappointed–but not surprised. When my husband and I first learned that there was a refundable tax credit for first-time homebuyers, we were elated (and happy to pay back the money, as well). By contrast, the version that passed the senate yesterday won’t help us–-or other homebuyers hoping to break into this market–-much at all. We’d have to be rich for that to be the case. Let’s hope the house version–-which maintains the $7,500, refundable credit (but repeals the need to pay it back)–is the version that goes to President Obama.
Use Chris’s letter. Let your senators know that this bill won’t help you–but that it’s just another handout to the wealthy. If we don’t make our voices heard, the senate version might be the one we end up with.
Ashley M.
I bought my first house on July 3rd, however when I filed my taxes I chose not to take the 7500.00 tax loan. What I was wondering is, if they pass this stimulus plan and the 7500.00 becomes a tax credit, would I still be eligible to recieve this money when I file my taxes next year?
mike
My wife and I are currently in the process of purchasing a home for 160k and I was wondering since I have no tax liability (we are actually getting back 3k for child credit) would I even see any of the 15,ooo if this passed as it is written right now? The way I am reading this, it looks like I will not. Would it be beneficial for us to close under the old 7500 one?
Shannon
I believe this “stimulus” plan will encourage fraud and will more than likely result in many more foreclosures. Lenders are already dealing with many “buy and bail” scenerios and other types of loan fraud that have put the country in this mess to begin with. Why add more feul to the fire? Also.. what about the millions of people who currently own a home with no intentions of moving and have done whatever it took to make their payments on time even though they are only a paycheck away from losing everything? Shouldn’t those people get a tax credit for being responsible homeowners?
Brian Grabowski
For either of these stimulus packages who do you contact or get in touch with to even take advantage of the money? All the information in the world is great but how and from who do we actually get it from?
phil k
Any opinions as to which date is relevant? Is it the sales contract date or the closing date?
Justin McHood
All,
First, let me thank everyone for commenting. The purpose of commenting is to have a 2-way conversation and I enjoy “talking” with each of you about your questions or comments.
Whether or not the $15,000 tax credit passes or not is still very much up in the air. Most of your questions (at this point) are *best* answered by this phrase:
“We will have to wait and see what passes”
I realize that is kind of non-personal, but this bill has went through many different drafts and the $15,000 tax credit has went from “almost certain to pass” to “no chance of passing” with the proposed economic stimulus bill.
One of my good friends and nationally-famous Real Estate Experts has done a fantastic job of covering this topic on his blog The Phoenix Real Estate Guy:
http://www.phoenixrealestateguy.com/15000-home-buyer-tax-credit-appears-dead-removed-from-compromised-version-of-stimulus-bill/1902
My best advice at this point?
Wait until the economic stimulus bill passes. And if it does pass, at that point, we can then analyze whether or not there is any kind of tax credit - and if so, how much and what the stipulations are.
Justin
$15,000 Tax Credit For Homebuyers Now Doubtful | Mortgages Unzipped
[...] Justin McHood covered a basic outline of the proposed legislation on Mortgages Unzipped. Many comments and questions resulted in this closing advice from Mr. McHood: Wait until the economic stimulus bill passes. And if it does pass, at that point, we can then analyze whether or not there is any kind of tax credit - and if so, how much and what the stipulations are. [...]
Lorrie McGovern
Is this in the new house bill? I was told it was out in an effort to reduce the stimulus plan. I can hardly believe that the stimulus plan designed to help the economic problem that started with housing is not addressing housing. I guess that’s politics.
Brad
It sounds like the amount has been reduced from 15,000 to 8,000 in an effort to reduce the stimulus price tag. If this is true that’s disappointing.
lorie
what do we the people who owens there homes,befor 20008 we should qualify for something 4000 or 5000 or something would help.
$8000 Tax Credit Replaces Proposed $15000 Tax Credit | Mortgages Unzipped
[...] since I brought up the subject of a possible $15,000 tax credit for anyone who buys a home, I feel somewhat responsible for bringing you the news of what actually [...]
Justin McHood
All,
Thanks for all of your comments/questions regarding the $15,000 tax credit.
A final version has been passed - and is now waiting for President Obama to sign it into law. You can read about the final version of what passed here:
http://www.zillow.com/blog/mortgage/2009/02/14/8000-tax-credit-replaces-proposed-15000-tax-credit/
Thanks again!
Justin
Meg
If you took the $8,000 federal tax credit/rebate this year, can you take advantage of this $15,000 deal next tax year and take the remaining $7,000? It should be okay to do so since they are letting people spread it over 2 years. Please respond to this and give details on how to do so. Thanks.
Meg
If you took the $8,000 federal tax credit/rebate this year, can you take advantage of this $15,000 deal next tax year and take the remaining $7,000? It should be okay to do so since they are letting people spread it over 2 years. Please respond to this and give details on how to do so. Thanks. BTW, I just read Justin’s post about the 15K not passing but instead, just the 8k one being used. Is this true? NO 15k Federal refund? Just the 8K????
rebecca
I just want to thank the gvrmnt for thinking about the middle class people who work hard every year and struggle. But make to much to get any of the breaks such as the the $7500 tax credit.
Do you think that the bill will pass this physical year?
Melissa
I hear alot about the $15,000 tax credit. I heard it went to vote but didnt pass by 48/50 vote.
Is this true?