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First Time Homebuyer Tax Credit Followup

Written by Nickel - 109 Comments

As I noted on Friday, changes are afoot when it comes to the $7500 first time homebuyer tax credit. More specifically, there has been talk of converting this from a pseudo-credit that actually has to be paid back into a true credit. I just wanted to follow up on that article with a bit more information from this summary of the “American Economic Recovery and Reinvestment Plan” from the House Ways and Means Committee:

Refundable first-time home buyer credit. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The bill would eliminate the repayment obligation for taxpayers that purchase homes after January 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase. This proposal is estimated to cost $2.562 billion over 10 years.”

As frustrating and unfair as this change will seem to people that took advantage of the credit in 2008, the limitation of this change to 2009 actually makes sense. After all, the goal is to get people to go out and buy houses, which means that people that have already taken the plunge aren’t the target audience.

Thanks to Ross for digging this up!

Published on January 26th, 2009 - 109 Comments
Filed under: Economy, Real Estate, Taxes

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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109 Responses to “First Time Homebuyer Tax Credit Followup”

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  1. 1
    Jared Moore Says:

    I still say it’s unfair.The people who bought a home on April 9, 2008 and before July 1, 2009, inclusive, are exactly the target audience especially since the housing market was well into the slumps before this time frame hence the reason the “credit” exists in the first place.Now, by changing the rules, the suckers who bought a house between April 9, 2008 and December 31, 2008 are the ones who will be repaying the loan.

    It’s too bad we didn’t wait in purchasing our home (May 30, 2008). The homes that were for sale when we bought are still for sale for a whole lot cheaper and we could have gotten a free $7500 to boot.

    I still find it funny that the whole reason we are in the mess is because it became easier and easier to put people who couldn’t afford a home in a home. This “credit” and the future revision do little to change that.

  2. 2
    Brandon Says:

    I discovered today that if you purchase a house in the proper period of 2009, you may amend your 2008 return to count it as having been purchased on December 31st, 2008. The upside is you get the money quicker, but the downside is that you will have to start paying it back a year sooner.

  3. 3
    nickel Says:

    Jared: I never said it’s fair. I just said that it makes sense. Assuming that he goal is to encourage people to go out and buy houses, how will giving money to people who already bought houses further that goal? We could debate fairness all day long. After all, when we bought our house in 2006, we weren’t offered any sort of incentive, not even the interest free loan that those in 2008 received. At some point, you have to draw a line, and those that fall just short of that line will be upset.

  4. 4
    nickel Says:

    Brandon: Re-read the article. Purchases in 2009 are likely to escape repayment entirely.

  5. 5
    Jared Moore Says:

    nickel: Sorry about that, I wasn’t trying to imply that you were claiming the change was fair, rather it was a comment on the government changing the loan to a credit for part of the target audience covered under the original purchase time frame.

  6. 6
    Independent George Says:

    I love it.

    In order to deal with a housing bubble caused by loose lending standards which encouraged over-investment in houses by people who couldn’t afford them, we’ve decided to lend even more money specifically to encourage housing purchases by people who otherwise couldn’t afford them.

  7. 7
    Angie Says:

    Won’t this just artificially inflate home prices by $7,500 negating the credit altogether?

  8. 8
    Angie Says:

    So now, is there some way that I could co-sign a mortgage with my fiance so he could qualify. Then he could receive the credit because his AGI is below the limits… There’s got to be a way around this so I could figure out how to receive it!

  9. 9
    Kev Says:

    Man… This thing has “use it and abuse it” written all over it! You already know that every builder under the sun is going to incorporate this into their marketing plans and sales pitches. So, rather than making horrible decisions with your own money – you are now free to make horrible decisions with your money AND the tax payers money!

    I can see the following happening:

    1.) A very few smart people out there will actually use this credit to their advantage. I have a feeling that most of the people in this group would have eventually bought a home anyways, with or without the credit, thus negating it’s true intention.

    2.) A lot of dumb people will rely on this credit to help them purchase something that they shouldn’t have been looking at to begin with and we’ll be right back to square one.

    I just don’t see this thing having the intended effect. At best, it will most likely end up being a very expensive failure.

  10. 10
    Jason Says:

    According to the article in my local paper (Columbus Dispatch) the house version of the bill will remove the repayment provision for all buyers dating back to the orginal passage. (see dispatch home and garden section from Sunday paper)

  11. 11
    TJ Says:

    I am still considering taking this “loan”. We bought our house in April 19,2008 and I am thinking just to put the money in a high-yielding and if we sell in the next few years we won’t have to worry about not having the money. Any thoughts?

  12. 12
    thomas Says:

    I’m taking the loan and will enjoy the $500 tax payment for the next 15 years. Thanks for the free cash gov’t!

  13. 13
    Brandon Says:

    nickel: I read the article, but I was just pointing out an alternate idea if the conversion to a true credit did not pass.

    Actually, now that you mention it though, the wording for filing an amended return (or a normal return if you buy before 4/15) is that you “treat the purchase as though it occurred on 12/31/2008″. I feel extra sorry for anyone who does that then finds out that only purchases treated after 1/1/2009 get a fullly refunded credit. I wonder if you could amend your amendment, return the loaned credit, and wait until 2009 to refile. If enough people did this, then we would have a whole new sort of Refund Anticipation Loan crop up!

    All of that said, whether or not they make it a true credit, I wish they would extend it to at least the end of 2009. I hate being pressured to ‘must-purchase’ by a particular date to get a great bonus.

  14. 14
    Brandon Says:

    “Won’t this just artificially inflate home prices by $7,500 negating the credit altogether?”

    I worried about this as well, especially if it becomes a true credit. That said, you do have to think of the PMI implications. Let us say you are a cash strapped homebuyer who would normally only have 3% to put down on a new home (I think that is the minimum for an FHA loan). You live in a relatively inexpensive area so you are able to find a starter home for $150,000 ($4500 down). Even if the housing price is artificially inflated $7500, you are now able to put down $12,000 which is 7.6% of the purchase price. I am not sure exactly how much that saves you, but I think you would be off PMI a couple of years earlier than otherwise.

    As an aside, I think the most annoying thing about the paid back version of the credit is that you have to remember it every year for 15 years. Do you think they are going to send out reminders? :)

  15. 15
    Bryan Says:

    “I discovered today that if you purchase a house in the proper period of 2009, you may amend your 2008 return to count it as having been purchased on December 31st, 2008. The upside is you get the money quicker, but the downside is that you will have to start paying it back a year sooner.”

    I don’t think that it is “treating” the purchase as if it occurred early, the provision just allows you to elect to take the credit early if you want to. The purchase date for tax purposes still remain the same.

  16. 16
    Trav Says:

    [Angie] “Won’t this just artificially inflate home prices by $7,500 negating the credit altogether?”

    [Brandon] … think of the PMI implications. Let us say you … would normally only have 3% to put down on a new home … for $150,000 ($4500 down). Even if the housing price is artificially inflated $7500, you are now able to put down $12,000 which is 7.6% of the purchase price.

    [Me] Fantastic — so this creates even *more* value for the buyer, which means that the home price will inflate *beyond* $7500. This bill has still failed to magically create value, but it’s actually made it more expensive for lots of people (e.g. those who do have the down payment) to buy houses.

    Don’t forget about the folks with AGI above $75000, who don’t get the credit but are faced with higher house prices. This is pushing them *away* from buying.

    Congress isn’t even thinking about things anymore. This bill clearly benefits the seller about as much as the buyer — it’s a free market; the home price will settle somewhere such that the buyer and seller both benefit. This bill creates just as much incentive to *sell* a house as it does to buy one.

  17. 17
    Jeff Says:

    Question…
    We purchased a new home in the timeperiod to qualify for this tax credit (Aug 1, 2008).

    My wife owned a home prior to us being married. When we bought the above mentioned home, it was my first home purchase.

    Do we qualify for the credit since it’s my first home purchase, my wife’s second, however we weren’t married when the first was purchased?

    I looked over the entire IRS document, no detail on that question.

  18. 18
    Eric Says:

    Now, I’m no economist, but just because a $7500 credit is offered to “first time homebuyers” does not mean that the price for every house is going to be inflated by that same $7500. Not everyone in the market will qualify for the credit. Will the price for houses increase a little bit due to this credit? Perhaps. But because the majority of those in the market to buy a home probably don’t qualify for this credit, home prices will not be affected too much.
    As was mentioned previously, I’m hoping the credit will be extended to the end of 2009, but I won’t be complaining if can’t get into a house in time to take advantage. The government is under no obligation to make this sort of tax credit, so it should come as a nice surprise for those that qualify.

  19. 19
    Tiffany Says:

    I’m settling on my home Feb. 27th, 2009. I am getting my loan through the USDA. I have two questions…Am I eligible for the credit or is the USDA considered one of the tax exemp mortgage bonds that are ineligible? And if i file my taxes now do I put the purchase on that has not occurred yet or do I wait until after settlement to file?

  20. 20
    Booch37 Says:

    Another point…I believe the purpose of this credit is to “inflate” prices by spurring demand. We have seen a 30% drop in values over the last two years and this only serves to breed further foreclosures as more folks who have “no skin in the game” decide to let their houses go which perpetuates the cycle. I am not sure that a little upward pressure on prices right now is a bad thing…this small effort will certainly have no impact like the subprime lending issues had on inflating prices so I am all for it. In fact I hope they increase the credit to make it more meaningful or at least extend it to all buyers.

  21. 21
    Matt @ StupidCents Says:

    I’m still holding out hope for the $20,000 tax credit for first-time home buyers. Doesn’t seem like it will make the stimulus plan. I wrote about it in my latest post. It seems like that is the hot topic these days :)

    Stupidly Yours,

    Matt

  22. 22
    matt Says:

    I bought my first house in january 08, is or was there anything
    Available to me? Seems crappy for those that missed this by 3 months

  23. 23
    Trav Says:

    Anyone who lives in the US should be used to the fact that ordinary conscientious folk get shafted in order to accommodate a few outliers. I’m not wasting energy objecting to that part.

    Those (Eric, Booch37) are some decent justifications for the home sale tax credit. If the point of the credit is just to give an incentive to make a sale (and pay off both the buyer and the seller), then, yep, it’s going to do that.

    Perhaps $2.5 billion of inflation, plus the disincentive to wealthy folk to get in the game, is not too much to spend simply for liquidity in a market. But I think it is. The long-term market will be healthier without constantly changing the pressure put on it by fiscal policy.

  24. 24
    Scott Says:

    Can someone clarify whether or not a first-time home buyer who purchased in 2008 will be able to receive the $7,500 and not have to pay it back? There are conflicting comments on this post and if someone can site a specific source on the clarification, I’d appreciate it. Thanks!

  25. 25
    Daniela Dragomir Says:

    We want to buy an apartment that will be ready on January 22, 2010. We signed a Purchace Obligation and paid 10% of the apartment value. The contract is still in attorney review, so we have couple of days to make some changes.
    Does that mean that we will not benefit on the $7,500 tax incentive under the newly proposed bill? What if we ask for the closing date to be Dec 31, 2009 and to move in on Jan 22, 2010. Would that give us the possibility to benefit on the $7,500 under the newly proposed regulations?

  26. 26
    Scott Says:

    As of now, the date they set for it to expire is July 1, 2009. So you would need to settle on the home by then to qualify. Some are pushing for it to be extended to the end of 2009, which means if you settled on the home (you dont need to have moved in) then you would qualify, but that’s only if they move the date from July 1 to Dec 31, 2009.

  27. 27
    Ben Says:

    Hi,

    I agree with Scott, there appears to be some conflicting reports as to if homebuyers who bought their home in 2008 are eligible for the newly revised non-repayment of the $7,500 tax credit.

    I closed on my house on April 30, 2008. Will I be eligible under the revision? I would find it hard to believe that they would in essence “penalize” those who bought in 2008.

    Thanks,
    Ben

  28. 28
    Scott Says:

    Agreed, Ben. I settled on May 9, 2008 and I am hoping that if this new proposal passes in the Senate, that I can get the $7,500 and not have to repay it. I would just feel a lot better if I had something ‘concrete’ that stated this. I am sure more will come out in the next week or so when the Senate comes to a decision. But any info now would be much appreciated.

  29. 29
    Ben Says:

    I wish I had some more info on it, but I just find conflicting reports. I have written to both of my Senators (I am from Massachusetts), not sure what that will do, but it will not hurt.

    I can see them leaving it as is for the 2008 purchases though, seems like they want to increase the incentive for new purchases, not for those made in the past.

    - Ben

  30. 30
    Scott Says:

    Yeah that is prob more likely, but it doesn’t seem fair if that occurs. If the timeframe is April 9, 2008 through July 1, 2009, then all buyers who settled within that timeframe should receive the same benefits. I mean take for example someone who settled on say Jan 10, 2009. He or she would have been under the impression that they would be able to take the credit and have to pay it back (same as 2008 buyers), but then when the change is made they dont have to pay back while 2008 buyers do? Doesnt add up. Obviously, I am biased, but still, the same rules should apply to everyone within the stated timeframe.

  31. 31
    Ben Says:

    I totally agree, I am biased as well, but just because I closed earlier does not mean I should be excluded from the benefit of not having to repay. Regardless, I am taking the credit anyways. It does seem like the Government does not feel that many people are going to take advantage if it, so they are amending it.

    If the cut off is July 2009 for no-repayment, that is a pretty short time frame for someone to decide to buy a house and get everything settled, most likely that process started in 2008 anyways.

    One of item that is unclear is that I have seen some information that says when you take the Homebuyer Credit, you cannot itemize your deductions. Anyone know if I can still itemize while claiming the credit?

    - Ben

  32. 32
    PJ Says:

    This may provide an answer about weather if you bought a house in 2008 under the new bill the repayment would be removed. Looks like that the answer is no; as taken from the language in the House and Senate versions of the stimulus bill. Taken from CNN.com:
    Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don’t sell for at least 36 months, they keep the money.

  33. 33
    Booch Says:

    Here is the question I face…My wife and I closed on January 2nd. If we claim the credit on our 2008 taxes as is allowed currently will we be subject to repayment even though our settlement date is after January 1.

  34. 34
    Jennifer Says:

    Same situation here. I wish someone could answer the question. Who would know the answer?

  35. 35
    Julie Crafton Says:

    My husband and I bought our first house in August of 2008, and are of course very interested to see what will happen with the stimulus bill, and whether the “true credit” will be retroactive to those of us who bought in 2008. I wrote my senators and noted to them that, if they are interested in stimulating the economy, then they should make the credit retroactive, encouraging us to actually use that money toward home improvements rather than putting it into a high-yield savings account.
    While I know that fairness doesn’t count for much in government, it would be quite a slap in the face if the House and Senate decide that those of us who bought in 2008 don’t deserve the same credit as those who are purchasing in 2009. After all, we’re the ones that have been taking a chance and supporting the real estate market over the last year.

  36. 36
    matt Says:

    was there anything available to those that bought in
    January of ‘08? Stinks that I missed by 3 months.

  37. 37
    Doc Rock Says:

    Imagine how I feel! I do qualify for the tax credit b/c I closed on my home on May 1st, so I AM eligible for the credit, but according to what is in the currently proposed stimulus package, I will STILL have to repay MY tax credit, BUT those that qualify for the EXACT SAME tax credit, but who closed AFTER January 1st (instead of the original April 9th date) WON’T have to repay it. Now how fair is THAT?

    Why should I have to repay mine but they dont have to repay theirs. It’s the same tax credit!

    Either everyone who gets the credit should have to repay it, or no one who gets it should have to repay it. It make no sense, and I emailed Sen Isakson of GA, who sponsored the new Bill (Senate Bill S.253) and told him so. I encourage everyone do so as well. Let your State Senator and Congress person know as well.

  38. 38
    Ben Says:

    I am in the same situation, I closed on April 30, 2008 and will have to repay the credit because I bought last year.

    I have written to Senators Kennedy and Kerry from Massachusetts. I hope the revisions to the bill will include those who bought homes in 2008.

  39. 39
    matt Says:

    I hope they open it to all of 2008, not just april and on.

  40. 40
    Bradley Selzer Says:

    This entire argument seems completely ridiculous to me. Just be thankful the benefit is there, whether you have to pay it back or not. At least you fall within the time frame. I purchased my home on March 27, 2008 and don’t fall under the arbitrary April 9, 2008. It seem that if they did make any changes, make the start date retroactive back to Jan 1 2008 through 2009.

  41. 41
    kyle Says:

    I am 21yrs old and a first home buyer. I am waiting to close on a house that is in the process of being built, with an est. finish date of April. I have been following the subject and have a question. Say I file for the credit on this years return amending the date to 12-31-08 so I receive the money now as opposed to a year from now. However if I opt to do this will it result in repayable credit if this bill is amended as the date will be recorded as 12-31-08 instead of as an 09 purchase. Will I have to wait and file it on next years form to receive the credit? Seems like if they want the money to aid in the purchase of the house their would be a loophole to get the money on this years return. or maybe that’s what their going for? thoughts?

  42. 42
    Stan V. Says:

    I qualify for the interest free 7500 loan and am going to take it (because, hell it’s free money). Even though I put 20% down on my home and have no need for the money I figure it will be great to use for my Roth IRA contribution because it’s free money now and will be free when I take it out years from now. Thank you Uncle Sam.

  43. 43
    Katt Says:

    I too fall under the “bought a house in 2008 and will not receive the credit”. Very frustrating and disappointing. Could really help out.

  44. 44
    Kerry Says:

    I am going to take the loan, bought the home and the money will go back into the home to improve its value, new windows first.
    I bought my home April 19th 2008 and yes I am upset
    that in 2009 first time homebuyers will not have to pay it back, however rules and regulations change as often as a baby’s diapers so don’t get too upset.
    Now you all will think I am nuts because I bought my first home at 61 but despite all I see here my main goal is still to fix up this home and retire in it someday. Good Luck to all.

  45. 45
    chris Says:

    I think this question was posted, but I don’t know if it was answered. I am scheduled to close on our first house feb. 18th, the bill says we can treat it as if purchased on 12-31-08. If we close in Feb. and file the credit on our 08 return, does that mean we will be part of the repayment plan, or part of the new amendment (non-repayment) to the bill?

  46. 46
    booch Says:

    Chris…same boat here as with many others we are waiting for the answer. I am guessing as the law has not been officially passed that the IRS has not issued guidance so it will be impossible to get the answer until this whole thing gets approved.

  47. 47
    shawn Says:

    I am having a hard time getting clarification on the new provisions put into the new stimulus. I bought a house in September of 2008 so I know I am eligible for the $7500 credit, but on the new stimulus it says payback will be eliminated. What I can’t figure out is if this is just for people who purchased there homes in 2009? I have heard many different interpretations. Would I still have to pay mine back? If so, I would not think this would be the way the governement should do it. The bill was passed for April 9, 2008- June 30,2009. If they eliminate 2009 payback, 2008 should be as well. Can someone please help me understand this more.

  48. 48
    Trey Says:

    I also bought at the end of 2008 and will probably have to repay the credit. I have learned my lesson though. Next time, I’ll wait to take advantage of any government plan until near the end of it to see if they change it again. Based on past circumstances, I would wait until the 2009 credit gets closer to expiring. They may just change it again, maybe from $7,500 to $15,000 or more. This one bill probably isn’t going to just fix everything anyway.

  49. 49
    Michelle Says:

    My husband and I are building a home right now. We will close in late March or early April. Does anyone know if I can claim the credit on my taxes and file now?? Or do I have to wait until we actually close?

  50. 50
    Steve Says:

    Just adding myself to the list of people curious as to how this works if we close in ‘09.

    I’m 23 and seriously considering buying a house right now as a result of the credit. I have a good job and make plenty to be able to afford all the monthly payments for a decent-sized ($120-140K where I live) 3 bed/2 bath house. All I’m lacking in is the downpayment money.

    Right now the plan is to borrow whatever extra I don’t have (probably a few thousand) from relatives and then use the $7.5K credit money to pay them back quickly. I can do this with FHA for sure and possibly with a more traditional loan depending on the bank.

    However, I need to get the money back reasonably soon to pay the money back so I plan to file retroactive on my ‘08 taxes (assuming I close before April 5th or so and I have time to get them filed) to get the credit money with my refund ASAP. But like many others, I am completely torn if that means I set myself up to be ineligible for the truly free money once these bills are passed.

    Long story short, I’m in the same boat as a lot of you and want to follow this here post closely for new news!

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