For Whom the Bell Tolls: The Tax Credit

The Federal Government extended and expanded the first time home buyer tax credit last fall. The National Association of Realtors was very aggressive in its effort to forward tax credit. The main reason was that the credit is one of the few ‘stimulus programs that directly benefits the average American Family. One of the intended consequences is that the tax credit has helped to stabilize markets, meaning average price, as we work through a huge inventory. For the average American, most of his or her wealth is ‘stored’ within the value of their home. The market correction has seen a significant reduction in that value. It is true that the value is only really ‘set or calibrated’ when one sells or refinances. Otherwise the value is a rough metric. It is also helpful to remember that the metric ebbs and flows just life the tide. It may be worth less today than yesterday, but will probably be worth more next year, etc.
The tax credit has been most effective and many new buyers have entered the market. In the first phase of the program, last year approximately 350,000 ADDITIONAL buyers made purchases. The second phase has produced similar numbers so far.
The second phase of the tax credit has a much broader reach. First time home buyers who are in sales agreements by 30 April 2010 and close by 30 June 2010 can receive a credit of $8000 for the purchase of a primary residence. There are family income limits; $125000 for individuals and $225,000 for married couples. The tax credit also has a repeat buyer provision which allow people who have owned a primary residence for three of the past five years to qualify for a $6500 credit. The income limits are the same and both credits have reduced benefits for individuals up to $145,000 and families to $245,000 of annual income.
Condominiums and single family both qualify, but second homes and non owner occupied investment properties typically do not. There is also a maximum purchase price of $800,000.
The important message now is that we have a month and a half to complete the search. That is you must find, negotiate, and have signed sales agreements by 30 April 2010 to qualify. You do have until 30 June to close, so you can move you family at the end of the school year if that is optimum for you and your family. It is very rare that the federal government gives its citizens money or land. This may be the first time since the land grants out West in the 19th century that the government is ‘giving away’ such value. Incidentally, granting land for compensation in lieu of cash is not new. In 1735, the King of England ‘paid’ many of colonial soldiers with land grants in East Greenwich. Do you notice a pattern, every hundred years, or so, there is a real gift from the government. This gift is significant, but the hour glass is almost out of time. Do not let the bell toll for thee or thee’s tax credit!