Federal stimulus includes $8,000 tax credit for 1st. time home buyers.

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/

Lauren Herman

Associate Broker, CRS, GRI, E-pro. Previews Specialist
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