The Worker, Homeownership and Business Assistance Act of 2009, signed into law on November 6, extends the American Recovery and Reinvestment Act and expands homebuyer tax credits to some current homeowners. The act became effective on November 7, 2009.
First time homebuyer tax credits continue to be available, up to the original $8,000 maximum credit, but income limits have been raised $50,000 to $125,000 if single or $225,000 for married couples. The original deadline of November 30 has been extended to April 30, 2010.
Under the act, current homeowners, if they owned their primary residence for five consecutive years out of the last eight years, are now eligible for a credit of up to $6,500 if married or $3,250 if single. Income limits are the same as for first time buyers. There is absolutely no tax credit for the purchase of any home exceeding $800,000.
Homebuyers are only eligible if a binding contract is signed by April 30, 2010, even if the purchase closes as late as July 1, 2010. Any future claims for tax credits will require that documentation be filed with claimants’ tax returns. Eleven state housing finance agencies (FHAs), not including Massachusetts, offer products that allow buyers to apply tax credits as down payments. As with all tax laws, things are never so simple and the actual credit will depend on the specific facts of each particular case.
Has the homebuyer tax credit worked? Will it positively impact our economy? As you might guess, it depends on whom you ask.
The National Association of Homebuilders claims that the new law will create nearly 325,000 jobs, $16 billion in wages, $12 billion in business income, $8.4 billion in federal tax revenue and $3.2 billion for state and local governments. It also concludes that the excess stock of homes for sale will be absorbed and home prices will begin to move up again.
National Association of Realtors’ economists estimate that two million people took advantage of the original tax credits, contributing some $22 billion to the general economy. “Now”, to quote a famous radio host, “for the rest of the story!”
Bloomberg news, along with other media sources, reports that key controls were missing in the rush to distribute credit checks and, as a result, significant fraud occurred. The Internal Revenue Service has identified more than 74,000 fraudulent claims totaling more than half a billion dollars; this out of the roughly 1.2 million credit claims totaling $8.5 billion.
Goldman Sachs estimates that all but 200,000 home sales, of those 1.2 million, would have occurred without the homebuyer credit. The National Association of Realtors puts the estimate at 350,000. One MIT professor concludes that, at a marginal cost of between $43,000 and $80,000 per incremental sale, the ratio of new economic activity to spending is far too low. He also concludes that homebuyer credits raise the cost of housing which, in his view, is already too high.
Recent Rasmussen surveys find that 57 percent favor the credit of $8,000 for first time homebuyers. “But support falls to 42 percent when respondents are informed that the program will cost several billion dollars. With the price tag attached,” Rasmussen says, “a plurality of voters (45 percent) are opposed to the plan.”
Where do you stand? Is this a good way to spend taxpayer dollars or is it a bad idea? Will you take advantage of the opportunity or not? Is this good for the housing markets or does it artificially inflate housing prices?
I have mixed feelings. In the short term it could improve my business, a very good thing! Long-term I prefer an economy where expansion results naturally from lower taxes.
