500,000+ Grab First-Time Homebuyer Credit

More than 500,000 buyers have used the first-time homebuyer credit to purchase a home. Amazingly enough, more than 38,000 buyers have already claimed the write-off but do not qualify. Why? In most cases because they owned a home during the past three years.

Figures from the Treasury Inspector General for Tax Administration show that a lot of people are using the new tax credit to buy homes.

• As of March 6, 2009, 567,685 buyers claimed more than $3.9 billion under the First-Time Homebuyer Credit program.
• Of the 567,685 claims, 38,158 may be disqualified because the buyer had an ownership interest in a personal residence within the past three years, meaning they could not be identified as a “first-time” buyer under program rules.

Bush First-Time HomeBuyer Program

Under the Bush Administration first-time homebuyers were offered a $7,500 tax “credit” to encourage more buying. In fact, the $7,500 was not a true credit, it was actually an interest-free loan that had to be repaid to the government.

While $7,500 in any form could help some first-time buyers, the Bush plan actually created more debt, money that had to be repaid over a 15-year period whether or not the value of the property went up or down.

The Obama First-Time Homebuyer Credit

The Obama plan is substantially different from the Bush program.

First, the credit amount has been increased from $7,500 to $8,000.

Second, the Obama credit is an outright grant. First-time buyers do not have to repay the money.

• Under the Obama plan buyers get a credit equal to 10 percent of the purchase price but not more than $8,000.
• If your tax bill is less than the credit, then you pay no taxes and Uncle Sam sends you a check for the balance between what you owe and your credit.
• You don’t qualify if you’re a nonresident alien, you or your spouse have had an ownership interest in a home during the past three years or your adjusted gross income is $95,000 if single or $170,000 if married. (The credit phases out if your income is above $75,000 if single and $150,000 if married.)
• You can’t qualify for the credit if you buy from a close relative such as a parent, grandparent or child.
• If you sell or rent the property within three years then the credit must be repaid. No flippers allowed.

First-Time Buyers

The National Association of Realtors reports that in 2008 “forty-one percent of recent home buyers were first-time buyers.” This percentage is within the typical range seen each year, thus in 2005 when 7,076,000 existing homes were sold you could expect that roughly 2.9 million were purchased by first-time buyers.

First-time buyers are enormously important because they’re a big part of the marketplace. Without first-time buyers moving into the marketplace many existing homeowners could not sell their homes.

Today we have a situation where home sales by unit volume are very much lower than during the past few years, thus anything which encourages sales should be seen as helpful. That said, it will take some time to determine how many additional sales have been created by the federal program for first-time buyers or whether we are just rewarding real estate decisions which would have been made anyway.

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