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If Senate Has Its Way Tax Credit Won’t Just Be For First-Time Buyers
February 7th, 2009 categories: Buying, The Economy
UPDATE (2-11-09): Just announced — the Senate & House compromise bill apparently doesn’t include the Senate-proposed $15,000 tax credit. To read more, Click Here.
Though Congress or the President may have made more alterations to the Economic Stimulus Bill by the time you read this, if the final bill follows the Senate’s lead, the housing market could get just the jolt it’s been waiting for.
That’s because the current draft of the Senate’s version of the bill includes a provision providing for a tax credit of up to $15,000 for EVERYONE who purchases a home as their principal residence between the time the bill becomes law and Sept. 1 of this year.
That’s far different than the current law, which provides a $7,500 tax credit (or 10% of the purchase price, whichever is less), but it must be repaid in 15 annual payments over 15 years, beginning in 2010 (or all at once if the home is sold prior to 2025).
So it’s really not a credit, but rather an interest-free loan. And currently, the credit is only available to first-time home buyers.
The House of Representatives’ version of the stimulus bill made a few modifications to the existing credit; the biggest one being the elimination of the repayment requirement as long as the home isn’t re-sold in the first three years, thus turning it into a true Tax Credit.
But the Senate’s currently proposed version of the bill makes the most sweeping changes, including:
- Doubling the maximum credit to $15,000
- Making the credit available to ALL homebuyers (not just first-timers) as long as its for their principal residence
- Repayment ONLY if the home is re-sold in the first 2 years
- Applies to purchases completed by Sept 1, 2009 (under the House proposal and current law it would expire July 1)
The one huge technicality that could affect those presently in escrow is that both bills provide that new tax credit rules will only apply to purchases that occur AFTER the new law is signed by President Obama.
So if you close escrow the day before the law takes effect, you’d miss out on 
the new credit and would instead be subject to the old rules (first-time buyer, full repayment, etc.).
It remains to be seen, how all this will shake out, for before it can become law, the full Senate must approve the bill, then the Senate and the House must merge their bills into one, and finally the president must sign it.
So a lot can happen between now and then, which is why I said at the top of this post that what you’re reading now could be obsolete by the time you read it. (I’ll keep a close ear to what’s happening and will update this post as I hear more news.)
At any rate, if the bill that gets President Obama’s signature mirrors the current Senate proposal at least in terms of the home buyer tax credit, then it could be just the tonic the real estate market has been waiting for, since it would give most buyers who purchase between late February and the end of summer a huge financial incentive to do so.
That could be just the impetus that’s needed to get more opportunistic buyers who have been waiting to see if prices or interest rates will drop further to jump back into the market.
And when the market starts to heat up, it usually fuels more of the same.
Personally, I’m encouraged by our legislators’ frenetic attempt to get things back on track as quickly as possible. Congress and particularly our new president seem to be on a mission to right the ship quickly and effectively. So far, the emphasis fortunately has been on solutions, not politics, which is very encouraging.
At least that’s how it looks from my perch.
Our National Association of Realtors created a chart outlining the Tax Credit differences between the current law, the house bill, and the current draft of the Senate’s version. To view that chart CLICK HERE.
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