Thu, November 05, 2009
Homebuyer Tax Credit Extended and Broadened To Aid Existing Home Owners
Congress just couldn’t resist the urge to give more money away.
Bloomberg reports that the House has followed the Senate’s lead by passing a bill extending the $8,000 first-time home buyers’ tax credit that was set to expire at the end of this month.
When the bill is signed by the president, purchase contracts signed by April 30, 2010 and closed by June 30 will qualify for the credit, assuming buyers have not owned a home within the previous three years. The legislation also creates a new $6,500 tax credit for property owners who’ve owned a home for five out of the last eight years if they sell their home and buy another.
As nearly as I’m able to understand, this still actually leaves a small group of people who can’t get a tax credit by buying a home. Those who’ve owned a home within the last three years but who owned it for fewer than five years wouldn’t be able to cash in by buying a new home.
The bill also sets higher income phase-out limits for the credit than before, preserving the credit for wealthier households. Under the new rules, the credits begin disappearing as adjusted gross income rises from $125,000 to $145,000 for single taxpayers, and between $225,000 and $245,000 for married couples filing jointly.
Interestingly, there is growing doubt that these homebuyer tax credits are cost-effective. The problem is that most of the people who receive the credit would have bought a house anyway, without the credit. By one estimate, only 350,000 home purchases – a small portion of the sales qualifying for the credit – have actually been “stimulated” by it. Ted Gayer at the Brookings Institution estimates that the taxpayer cost of the additional home sales generated is actually $43,000 each.
A recent Goldman Sachs study suggests that the first-time homebuyer credit has generated only 200,000 additional sales; if true, that would make the cost per home sale generated significantly higher.
My suspicion is that the credit will not be extended beyond what has been done in this bill, if for no other reason than that within a few months there will be much more widespread criticism of the cost. So if you’re thinking of buying a house next year, don’t bank on the tax credit being extended past mid-2010.