Congress Dropped the Ball - The Skinny on the $8000 Tax Credit

I was really hoping that congress would actually do something to help our current situation with the housing market, but I think they dropped the ball on this one. Initially the Senate version of the economic stimulus bill had a provision that allow anyone purchasing a home to get a $15,000 tax credit. There were certain restrictions on it, but it seemed to be fairly open ended. Had this happened, I have talked to several people that would have jumped off the fence and pulled the trigger on a home. The reason I see this as such a huge advantage over the current first time home buyers credit of $8,000 is simple.

First time home buyers are traditionally the younger buyers who have been at their jobs between 2-5 years. Well, these are the exact workers that are getting laid off right and left. I think many of these people are going to let the $8,000 credit pass them by as they are more worried about heir job security than stepping into their first home. Furthermore, there has been a $7,500 credit in place for some time and it hasn't done anything. Secondly, in watching the market as I do, the homes that need to sell aren’t the lower end homes. Where I see a gluttony of inventory is in the price point above $300,000. I think part of the blame goes to the builders for overbuilding these types of homes, but that isn’t the issue. Had they passed the $15,000 tax credit, I could see a lot more middle income people stepping up and buying that upgrade. The prospects of getting a $15,000+ tax return would be pretty enticing.

That being said, here is a quick scenario I pulled from cnn.com which explains how the actual $8,000 tax credit does work:

"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"

The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends. Here are three scenarios:

Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.

Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll witholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.

Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll witholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.

To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.

Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)

Applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.

As always, if you have any questions feel free to give me a call or shoot me an e-mail.