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Tax Credit Update: Will It Stay Or Will It Go?

October 25th, 2009 categories: Buying, The Economy

Tax Credit Expiring - 36 DaysWith only 36 days to before the $8,000 first-time home buyer tax credit expires, the winds surrounding its fate are swirling all around Capitol Hill these days, as lawmakers try to decide whether to extend it or let it fade away.

From what I’ve been reading and hearing, there seems to be strong sentiment in Washington to extend the credit. But for how long or in what form still seems very much open to debate.

The options that have been bandied about in recent weeks include:

1) letting the credit expire on Nov. 30

2) expanding the credit to include more than just first-time buyers

3) increasing the amount of the credit from $8,000 to $15,000

4) extending the current credit, but only until mid-2010

5) extending the credit until the end of 2010, but phasing out the amount of the credit as the year progresses

6) increasing the income threshold so that more higher-income buyers can also qualify for the credit

Several bills have been floating around Congress. Perhaps the biggest proponent of extending and expanding the credit is Senator Johnny Isakson of Georgia, a former real estate agent. He authored legislation to extend the credit back in June.

That bill originally called for increasing the credit to $15,000 and expanding it so most owner-occupants would be able to claim the credit.

Late last week, however, several news accounts quoted Isakson as saying he will introduce an amendment to that bill which would only extend the credit for just six months and keep it at $8,000 instead of the originally proposed $15,000.

The proposed amendment would also raise the income limits so those with incomes all the way up to $150,000 (single) or $300,000 (married) would still be able to claim the credit.

Meanwhile, Nevada Senator Harry Reid is proposing a plan that would keep the tax credit through the end of 2010, but with declining credit amounts as the year progresses. His plan would keep the credit at $8,000 for the first three months of the year, then drop to $6,000 in April, $4,000 in July and $2,000 in October, thus creating an incentive for those who qualify to buyer sooner rather than later.

There doesn’t seem to be a huge outcry against extending the credit. Several congressmen have questioned whether the tax credit has really been as big an incentive to first-time buyers as people think. HUD secretary Shaun Donovan recently addressed the Senate Banking Committee and echoed those sentiments.

Several studies have suggested that many of those who qualified for the tax credit probably would have bought anyway, even without the government’s $8,000 subsidy.

So right now, it’s all just a lot of rhetoric from the political set. Which means that at this point, it’s still 36 days and counting.

If you qualify for the current credit and are already in contract and set to close escrow by Nov. 30, then what happens in Washington in the coming weeks probably isn’t a big deal.

On the other hand, if you qualify and haven’t yet gotten into contract, you may already be too late to get a deal closed in time to beat the Nov. 30 deadline. It’s not impossible, but everything would have to go like clockwork, which may be wishful thinking, especially since Thanksgiving holiday-related work closures are sure to cause added last-minute delays for many buyers.

Hopefully Congress will make some decision about the fate of the tax credit in the next week to 10 days. If so, and if the credit is extended (and perhaps even expanded) as many expect will happen, that would certainly make life a lot more enjoyable for many first-time buyers. And maybe even for some non-first-timers, too.

I’m keeping a close eye on things and will post an update as soon as I hear anything new.

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This entry was posted on Sunday, October 25th, 2009 at 4:46 pm and is filed under Buying, The Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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