Dan Carpenter - Blog

Tax Credit Extension Is Signed Into Law

Dan Carpenter — Sun, 08 Nov 2009 14:20:45 GMT

The Basics: Extended Home Buyer Tax Credit 2009/2010

Bringing the Dream of Homeownership Within Reach

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed and President Obama has signed new legislation that:

Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
Expands the credit to grant a $6,500 credit to current home owners purchasing a new or existing home between November 6, 2009 and April 30, 2010.

Here is more information about how the Extended Home Buyer Tax Credit can help prospective home buyers become part of the American dream.

Latest news:
Tax Credit Extension a Positive Step Toward Real Estate Recovery (Nov.5)
President's Podcast: Tax Credit Extended (Nov. 5)

Who Qualifies for the Extended Credit?

First-time home buyers who purchase homes between November 6, 2009 and April 30, 2010.
Current home owners purchasing a home between November 6, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

If you or your client purchased a home between January 1, 2009 and the date the bill is signed by President Obama, please see: 2009 First-Time Home Buyer Tax Credit.

Which Properties Are Eligible?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Is Available?

The maximum allowable credit for first-time home buyers is $8,000.

The maximum allowable credit for current homeowners is $6,500.

How is a Buyer's Credit Amount Determined?

Each home buyer’s tax credit is determined by tow additional factors:

The price of the home.
The buyer's income.

Price

Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.

Buyer Income

Under the Extended Home Buyer Tax Credit, which is effective on November 6, 2009, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.

These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you or your client purchased a home between January 1, 2009 and November 5, 2009, please see 2009 First-Time Home Buyer Tax Credit.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If He/She Closes After April 30, 2010?

Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

Your window to historic low rates may be closing.

Dan Carpenter — Thu, 14 May 2009 17:28:39 GMT

Bond market: Shaken and stirred

Long-term rates have shot up. The good news: It's a sign of an improving economy. The bad news: Your window to refinance may soon slam shut.

By Paul R. La Monica, CNNMoney.com editor at large Last Updated: May 11, 2009: 1:08 PM ET

NEW YORK (CNNMoney.com) -- Want further proof that risk is no longer a four-letter word? Just take a look at what's going on in the bond market.

Since the Federal Reserve announced in mid-March that it would begin buying long-term Treasurys in order to keep their rate down, Treasury bonds and notes have fallen sharply, pushing yields on these securities much higher. (Bond prices and yields move in opposite directions.)

The yield on the benchmark U.S. 10-Year Treasury note is now about 3.2%, after hitting a year-to-date high of 3.29% on Friday. On March 18, the day the Fed unveiled its Treasury purchase plan, the 10-year yield was about 2.5%.

So what does this mean?

On the plus side, a period where both stocks and bond yields are on the rise is somewhat encouraging. That's because higher bond rates are typically a sign of an improving economy -- an environment where investors feel more comfortable with riskier investments that offer greater potential rewards.

If more investors buy into the notion that the economy is getting better, long-term yields could climb further since money managers may be willing to sell bonds and buy more stocks.

But there's a downside to higher yields. Many types of loans, including mortgages, have rates that are closely tied to yields on long-term Treasurys.

Given the fragile state of the economy right now, a further spike in bond yields could jeopardize the recovery by making it more expensive for borrowers to get new loans and homeowners to refinance mortgages. It's for that reason that the Fed decided to buy $300 billion in long-term Treasurys back in mid-March.

"There was a huge amount of refinancing in the past few months. That was a nice boost but chances are definitely fading away quite quickly," said Benji Bailey, a fixed income investment manager with the MMA Praxis Intermediate Income fund.

With all that in mind, where are long-term rates likely to head next? It's almost impossible to say for sure. But many bond investors expect a bumpy ride.

James Barnes, a fixed Income portfolio manager with National Penn Investors Trust Company in Reading, Pa., said the Fed has to keep a close eye on where yields are now.

If they climb back above 3.25%, it could force the Fed to take action drive down rates again since the central bank will not want them to get out of control.

"The economy may continue to improve and force yields higher. But mortgage rates could go up and that will tie the Fed's hands," Barnes said. "Once rates start going up, they could explode up."

Adding to the pressure on the Fed is the fact that the Treasury Department is issuing a large quantity of new bonds and notes in order to finance the government's massive deficit.

So even though the Fed is attempting to keep rates low by creating demand for Treasurys, it may not be enough to counteract the excess supply on the market.

"The Fed's purchases pale in comparison with the amount that Treasury is raising lately. That's a big factor behind the rise in yields," said John Canavan, an analyst with Stone & McCarthy, a Princeton-based fixed income and economic research firm. "I am not sure the Fed can make purchases large enough to fully offset what Teasury is issuing. It would be a losing battle."

Bailey added that it's not clear if foreign investors, which were big buyers of Treasurys during the worst of the credit crisis, will continue to be as voracious if the stock market continues to improve. That could also drive rates higher.

"Before mid-March, people were afraid and wanted the safety of Treasurys. That's been less of an issue as the stock market has done well," he said. "But people now are looking at the fact that the U.S. will have to issue a lot of Treasurys, and it's uncertain if foreign buyers are going to take in this supply."

Still, Canavan said people should not be overly concerned if yields continue to head higher. He argues that as investors begin to realize that the economy may not be in as bad shape as they feared a few months ago, rates should move up.

"Even if long-term rates get back to 3.5%, that's historically still very low," he said. "This is sign that markets are trading at some semblance of normalcy. I don't expect an ugly trend where rates get out of hand."

However, not everyone is convinced that rates will march that much higher anytime soon.

Barnes said there is the potential for another bond rally that could push yields back toward 2.5% as some investors start to doubt whether the recovery is for real.

Matthew Smith, chief investment officer with Smith Affiliated Capital, a fixed-income money management firm in New York, agreed. He said that just because economic numbers are "less worse" does not mean that it's time to celebrate.

"There is a huge disconnect in terms of what Wall Street perceives as a rosy economy. The numbers don't translate to Main Street just yet," Smith said. "[Fed chairman Ben] Bernanke is telling us there are green shoots. They look rather yellow to me."

Smith said that because consumers still have relatively high debt loads, he's not convinced that any recovery will be as strong as people now expect it to be

"I don't think you can hang your hat on yields going much higher. You could look at what's going on as happy days are here again but this is more of a buying point for Treasurys, not a selling point," he said.

Federal stimulus includes $8000 tax credit for 1st time home buyers

Dan Carpenter — Tue, 24 Mar 2009 16:57:05 GMT

FAQ on Federal Plans to Stimulate the Housing Market*

The following is a summary of how the real estate industry is being impacted by the current governmental actions to stabilize the economy.

Q. What happened?

A. On February 17, President Obama signed the American Recovery and Reinvestment Act (of 2009), totaling approximately $780 billion, which is intended to provide a stimulus to the U.S. economy in the wake of the recent economic downturn.

The bill includes federal tax cuts, expansion of unemployment benefits and other social welfare provisions, and domestic investments in education, health care and infrastructure, including the energy sector. It also includes a scaled-back version of President Obama's middle-class tax cut proposal providing individuals with up to $400 and couples $800.

Even in its trimmed version, many economic experts believe the recovery measure will be the most expansive fiscal action taken by the federal government since World War II.

Q. What's the key takeaway?

A. Many industry analysts are pleased that government officials have taken swift action to address the current economic and housing issues affecting Americans. The housing sector is at the core of the U.S. economy. A renewed and robust housing market can help to generate overall commerce and help American families build wealth and stability. The measures aim to facilitate job creation, while the tax cuts will help families recover and grow their wealth. Additionally, they focus on enabling more people to keep their homes and help others to become homeowners.

Overall, the plan provides incentives to first time home buyers, tax credits for energy-efficient home improvements, extension of key loan limits, funding for areas hit by foreclosure, loans for rural housing projects, grants for low-income housing and tax-exempt housing bonds.

Q. What are the housing-specific measures of the bill?

A. Here are more specifics on a variety of measures that are related to the housing market:

First Time Home Buyer Tax Credit

The bill provides a tax credit which will be the lesser of either 10% of the home's cost or $8,000. This will be available to qualified first time home buyers for the purchase of a principal residence between January 1, 2009 and before December 1, 2009. The tax credit is available for first-time homebuyers or those who have not owned in the last three years. The credit does not require repayment (which is unlike the 2008 iteration of the credit). Like the 2008 version, the credit will be claimed on a tax return to reduce the purchaser's income tax liability. If any credit amount remains unused, then the unused amount will be refunded. If the home is sold within three years of purchase, the entire amount of credit is recaptured on sale.

This measure can help to significantly lower housing inventory, bring stability to home values and move the country closer to economic recovery. Many industry experts have said that the tax credit for first time homebuyers could result in up to 300,000 additional home purchases each year.

A full chart with more information on the tax credit is below:

FEATURE

FIRST-TIME HOMEBUYER FEDERAL INCOME TAX CREDIT:

EFFECTIVE FOR PURCHASES ON OR AFTER JANUARY 1, 2009 AND BEFORE DECEMBER 1, 2009

Amount of Credit

The amount of the homebuyer federal income tax credit is the lesser of 10% of the cost of the home bought or $8,000.

Eligible Property

Any single-family residence (including a condo, co-op, or townhouse) may be an eligible property under the homebuyer income tax credit, provided it will be used as the homebuyer's principal residence.

Refundable

This homebuyer income tax credit reduces income tax liability. The $8,000 tax credit is a clean refundable credit, unlike the one that was passed last summer, which required a repayment. If you qualify as a first-time buyer (i.e., haven't been a homeowner in the past 3 years), then you can claim the $8,000 to reduce your tax burden. If the $8,000 is greater than the tax you owe, then you will get a refund check for the difference. Example: you owe $2,000 in taxes on April 15, 2010. But if you bought a home before the stimulus expiration on Dec. 1, 2009, then you will get a tax refund check for $6,000 from the IRS.*

Income Limit

In order to be eligible for the homebuyer income tax credit in full, the homebuyer can have an annual adjusted gross income of no more than $75,000 ($150,000 on a joint return). A homebuyer with an annual adjusted gross income above that level and up to $95,000 ($170,000 on a joint return) is eligible for a reduced tax credit.

First-time Homebuyer Only

The homebuyer income tax credit is designed for first-time homebuyers, which means the homebuyer (and/or the homebuyer's spouse) can not have owned a principal residence in the 3 years prior to purchase of the eligible property.

Revenue Bond Financing

A homebuyer who utilizes revenue bond financing may be eligible for the homebuyer income tax credit.

Repayment

There is no repayment of the homebuyer income tax credit by the homebuyer.

Recapture

However, if the eligible property is resold within three years of purchase, the entire amount of homebuyer income tax credit is recaptured on the sale.

Effective Date

The First-Time Homebuyer Federal Income Tax Credit is effective for purchases on or after January 1, 2009 and before December 1, 2009. This guide reflects a modification from the First-Time Homebuyer Federal Income Tax Credit, which remains in effect for homes purchased by eligible homebuyers between April 9, 2008 and Dec. 31, 2008.

To promote green jobs and energy independence, the bill provides state and local governments $6 billion in energy efficiency and conservation grants. Through 2010, homeowners will be able to claim a 30% tax credit (up from 10%) for purchases of new furnaces, windows and insulation. Another $5 billion will be available to modernize the nation's electricity grid and install smart meters on homes that help to save consumers money. There is also $5 billion for weatherization assistance for low income households and $2 billion for federally assisted housing efficiency efforts.

The bill reinstates 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans. These limits were equal to the greater of 125% of the 2008 local area median home price with an overall maximum cap of $729,750. For the few areas where the 2009 limits were higher, the higher limits will apply. In addition, the bill includes language providing the HUD Secretary with the discretion, if warranted, to increase the loan limit for any "sub-area", i.e.an area smaller than a county. The Secretary's discretion is again limited by the $729,750 cap. These 2009 limits will expire December 31, 2009.

The inclusion of these loan limit provisions in the final bill is a victory for homeowners, buyers and realtors. While these new limits were included in the version of the original stimulus bill approved by the House, the bill first approved by the Senate did not.

Foreclosure Mitigation & Neighborhood Stabilization

The bill also provides $2 billion in additional funding for the Neighborhood Stabilization Program to address the problems created when neighborhoods are negatively affected by foreclosures. The funds can be used to purchase, manage, repair and resell foreclosed and abandoned properties. In addition, the funds can also be used by states and localities to establish financing methods for the purchase and redevelopment of foreclosed properties. After purchase, the homes must be used to assist individuals and families with incomes at or below 120% of area median income. Twenty-five percent of funds must be used for households with incomes at or below 50% of area median income. Coldwell Banker is proud that many of its real estate professionals have already made significant contributions to their local neighborhood stabilization programs.

Funding

The bill provides an additional $500 million to existing Rural Housing programs, which provide both a guaranteed loan program and a direct housing loan program for those who are eligible. This measure alone has reportedly been implemented in order to enable 192,000 Americans to become homeowners.

Under this provision, states can trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations.

Tax-exempt interest earned on local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). Financial institutions will also have greater capacity to purchase tax-exempt state and local bonds.

Q. Will the first time homebuyer credit be enough to move buyers off the sidelines?

A. Industry analysts reacted positively to the increase in the tax credit for first time homebuyers (and those who have not owned for at least three years), and the amendment that eliminates the need for repayment if they stay in the home for more than three years.

However, NAR and other real estate experts also unsuccessfully lobbied for an extension of the credit to all homebuyers purchasing primary residences. Ultimately, however, this credit represents a clear step in the right direction.

Q. Is the first time homebuyer tax credit retroactive, and if so, for how long?

A. It is retroactive from the beginning of this year, meaning that it will be available for buyers who purchase a residence on or after January 1, 2009 and before December 1, 2009.

Q. What else is being done to help stop foreclosures?

A. Following the Stimulus plan, the Obama administration unveiled a separate proposal to help stem foreclosures through the following measures with many components (for detailed explanations of each, please visit: http://www.treas.gov/initiatives/eesa/homeowner-affordability-plan/ExecutiveSummary.pdf). The proposal consists of:

Refinancing help for four to five million homeowners who receive their mortgages through Fannie Mae or Freddie Mac

A new program will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions. Refinancing will help families lower their monthly payments, potentially saving them thousands of dollars each year.

Creating a $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

The goal behind this initiative is to reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this will help those who commit to make reasonable monthly mortgage payments stay in their homes - providing families with security and neighborhoods with stability. Incentives will be implemented for borrowers who keep up with payments and for lenders who make loan modifications. The plan will also enable judges to modify mortgages during bankruptcy procedures and push for legislation to remove obstacles preventing mortgage servers from modifying troubled loans.

The Treasury will develop standards for loan modifications across the mortgage industry and will work with regulators and agencies to implement these guidelines across the entire mortgage market. These guidelines will be applied (as appropriate) to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Fannie Mae, the FHA, Treasury, the Federal Reserve, the FDIC, etc.

Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

The Treasury is providing additional funding to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability. Additionally, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.

Complete eligibility details for the provisions above will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history.

Q. How and when will these programs go into effect?

A. Now that the bill has been signed the roll-out of the recovery funds will be closely watched. The tax credits will be immediate. Coldwell Banker will continue to share updates and details as they become available.

*Information courtesy of http://www.realtor.org/ and http://www.whitehouse.gov/

FEATURE		FIRST-TIME HOMEBUYER FEDERAL INCOME TAX CREDIT: EFFECTIVE FOR PURCHASES ON OR AFTER JANUARY 1, 2009 AND BEFORE DECEMBER 1, 2009
Amount of Credit		The amount of the homebuyer federal income tax credit is the lesser of 10% of the cost of the home bought or $8,000.
Eligible Property		Any single-family residence (including a condo, co-op, or townhouse) may be an eligible property under the homebuyer income tax credit, provided it will be used as the homebuyer's principal residence.
Refundable		This homebuyer income tax credit reduces income tax liability. The $8,000 tax credit is a clean refundable credit, unlike the one that was passed last summer, which required a repayment. If you qualify as a first-time buyer (i.e., haven't been a homeowner in the past 3 years), then you can claim the $8,000 to reduce your tax burden. If the $8,000 is greater than the tax you owe, then you will get a refund check for the difference. Example: you owe $2,000 in taxes on April 15, 2010. But if you bought a home before the stimulus expiration on Dec. 1, 2009, then you will get a tax refund check for $6,000 from the IRS.*
Income Limit		In order to be eligible for the homebuyer income tax credit in full, the homebuyer can have an annual adjusted gross income of no more than $75,000 ($150,000 on a joint return). A homebuyer with an annual adjusted gross income above that level and up to $95,000 ($170,000 on a joint return) is eligible for a reduced tax credit.
First-time Homebuyer Only		The homebuyer income tax credit is designed for first-time homebuyers, which means the homebuyer (and/or the homebuyer's spouse) can not have owned a principal residence in the 3 years prior to purchase of the eligible property.
Revenue Bond Financing		A homebuyer who utilizes revenue bond financing may be eligible for the homebuyer income tax credit.
Repayment		There is no repayment of the homebuyer income tax credit by the homebuyer.
Recapture		However, if the eligible property is resold within three years of purchase, the entire amount of homebuyer income tax credit is recaptured on the sale.
Effective Date		The First-Time Homebuyer Federal Income Tax Credit is effective for purchases on or after January 1, 2009 and before December 1, 2009. This guide reflects a modification from the First-Time Homebuyer Federal Income Tax Credit, which remains in effect for homes purchased by eligible homebuyers between April 9, 2008 and Dec. 31, 2008.