Just as the door was about to slam shut on the First Time Home Buyer Credit, Congress not only extended the deadline, but also expanded it to include those who are not first time buyers. Originally this was meant as a tool to jump start the sorrowful real estate market by helping a segment of the economy purchase homes. That segment included only those who had been out of the housing market for at least three years. The incentive was an $8,000 credit to be received only after the closing of escrow. Eligible taxpayers could wait and get the credit on their 2009 income tax return, or they could amend their 2008 returns (for those who had already filed) and get the credit right away. But as the window of opportunity was starting to close, the clamor to keep it open made Congress do a double-take. On November 6, they passed a law that ups the ante.
The new law, entitled, Worker, Homeownership, and Business Assistance Act of 2009, extends the previously available $8,000 credit to first time home buyers until April 30, 2010. Unlike the original credit – which hinged on having completed a purchase by the deadline of November 30, 2009 – home buyers who have secured binding contracts by the April 30th deadline will still qualify if the purchase is complete by July 1, 2010.
In addition, the new law adds a credit that will be available to those who qualify as “long-term residents of the same principal residence.” That is defined as a homeowner who has owned and lived in the same principal residence for five consecutive years within the eight year period ending with the date of purchase of a new home. This credit would allow current homeowners to move up to bigger, more expensive homes, as well as making it possible for others to downsize to smaller homes if so desired.
What are the limits?
Previously, the home buyer credit phased out for single taxpayers with modified adjusted gross incomes (MAGI) of $75,000 (topping out at $95,000) and for married taxpayers filing jointly, MAGI of $150,000 (topping out at $170,000). Under the new law, the phase-out begins at $125,000 for single taxpayers and $225,000 for married taxpayers filing jointly.
In addition, the credit is only available on the purchase of homes costing no more than $800,000 (this applies to homes purchased after the effective date of the new law, which was November 6, 2009).
Now that the first round of housing credits is near its original end date, how has this program affected the housing market in the United States?
As might be expected, reviews are mixed. Real estate professionals and other supporters say it has been wildly successful. While others are not so sure, a report from the Deutsche bank does show some reason for optimism, says The Wall Street Journal, even if it is mostly psychological.
Deutsche Bank pointed out the harsh reality that the credit, which is worth up to $8,000 to an individual homebuyer (or couple) costs taxpayers closer to $43,000 each. This is because the vast majority of those who bought homes (1.4 million) and qualified for the credit would have bought anyway, leaving only about one in five that bought because of the credit. The same analysts see hope in the fact that the expanded income limits in the new credit -- which gives existing home buyers a $6,500 credit -- can translate into an additional $150,000 of buying power for those who qualify.
True, it’s not the enormous boost that “some euphoric headlines would imply,” according to the report. Yet analysts “can’t dispute that it has been meaningful in bolstering consumer psychology and general housing market sentiment.”
“While the actual impact on sales numbers may be relatively light, the impact on consumer psychology, and that second-order impact on the housing market, could be meaningful, and should serve to take a worst-case scenario off the table, at least over the next several months.”
NOL CarrybacksAlso under the Worker, Homeownership, and Business Assistance Act, businesses that end 2009 with a net operating loss will get a boost. A previous law allowed small businesses – with gross receipts of $15 million or less -- to carry back NOLs incurred in 2008 for three, four, or five years, rather than the usual limit of two years. This way they could claim refunds of federal taxes paid during more profitable time periods.Thanks to the new law passed on November 6th, all businesses, regardless of their gross receipts can carry back NOLs incurred in 2009 for up to five years (with a 50 percent income limit in the fifth year).UnemploymentFinally, individuals who have lost jobs and are collecting unemployment will see benefits extended an additional 14 weeks. In states where unemployment rates top 8.5 percent, benefits will be extended 20 weeks. The exclusion of benefits from gross income for federal purposes has not been extended, and will expire as planned at the end of 2009