Homebuyer Tax Credit Could Expand

The federal government’s homebuyer tax credit has been a boon for both the housing industry and the housing market, causing a surge in sales over the last few months. In fact, the program has been such a success, that some states are now introducing their own versions, and stakeholders are lobbying both to expand the federal program and to extend its deadline.

In its current form, the “tax credit is equal to 10 percent of the home’s price, up to $8,000. So, for example, if a buyer is paying $50,000 for a house, the credit would be worth $5,000. The tax credit never has to be repaid. Last year, Congress created a different tax credit, but that one was effectively an interest-free loan. This money involves no repayment or interest…Buyers will get the money when they claim the tax credit while filing their federal income taxes for 2009.” If a taxpayer owes less than the tax credit he is due, then he is still entitled to receive the difference.

Given that the program is slated to expire on November 30, several lawmakers have already moved to legislate an extension. In fact, there are two bills currently winding their respective ways through Congress: “H.R. 101, The Economic Recovery Through Responsible Homeownership Act of 2009, which would provide up to $10,000 in tax breaks to any homebuyer who makes a qualifying down payment and H.R. 1245, the Homebuyer Tax Credit Act of 2009, which would provide a tax credit of up to $15,000.” The Senate is currently working on developing similar legislation.

Another change could affect borrower eligibility. With the current credit, “Congress set an income limit for the full credit. For a single person, it’s $75,000 and for married couples, it’s double that.” With the extension, it’s possible that these income limitations (and maybe even the requirement that the credit be applied towards a first-time home purchase) could be eliminated, in order to make the credit available to more people.

Meanwhile, the federal government is not the only one working overtime on this issue. New York recently became the first state (that I know of) to implement a similiar program, which “would allow home buyers to take a dollar-for-dollar deduction of 20 percent of mortgage interest paid, Gov. David A. Patterson and other state officials announced. The remaining 80 percent of the mortgage interest paid for the year will be treated as usual, as itemized tax deductions.” For some borrowers, this could amount to savings in excess of $1,000 a year. Not a bad deal, especially when you factor in the federal money. It will be interesting to see if other states follow suit, and we’ll keep you posted as this story unfolds.