The National Association of REALTORS (NAR) have to be glad that this week is over. It had to be tortuous – thinking on Tuesday that Congress was on it’s way to approving a $15,000 tax credit for those that bought a home in 2009 – then watching the House of Representative strike it completely from the Economic Stimulus package on Wednesday. The NAR’s response to the unexpected change was measured, saying only that nothing was yet decided, and that changes would be made before President Obama signed the bill into law. The week ended with a narrow passage of the Economic Stimulus Package on Friday, and (together now, with a sigh of relief) the NAR’s efforts were rewarded with an honorary mention in the American Recovery and Reinvestment Act.
I preface with all of that to say this: THANK GOD! Not because I think that the measure will be a salvation to the industry, but because their are several reasons why the act passed yesterday is better than the $7,500 tax credit passed last year and the $15,000 tax credit initially supported by the NAR. Here are the top three reasons why:
(1) The same benefit for all that use it. The initial $15,000 tax credit had so many conditions on it that we had to have a CPA come to our office to explain who could use it, when they could use it, and how much they could use it. The $15,000 tax credit would not have been refundable in any way – it would have only eliminated the tax liability over a maximum of two years, and the full benefit was only received if you owed $15,000 when you filed your taxes (or owed $7,500 in two consecutive years). For many first-time homebuyers, who might have little or no tax liability, no benefit was received. The measure awaiting the President’s approval gives everyone that’s eligible access to $8,000, regardless of their total tax liability.
(2) It will mean money in the pockets of homebuyers. As I explained in #1, under the $15,000 tax credit plan the benefit was in NOT paying a tax bill owed, but it didn’t actually GIVE money in the form of a refund. The $7,500 tax credit passed last year was different: if a homebuyer owed $2,500 in taxes, the credit would mean that the homebuyer would get a refund of $5,000. As long as they’re eligible, this translates into a very real benefit for all homebuyers, regardless of their tax eligibility.
(3) Homebuyers don’t have to pay it back. The $7,500 tax credit passed last year required that at least $500 be repaid each year (after 2010) until the $7,500 was repaid – essentially it was a 0% interest 15-year loan. The best part of the $15,000 tax credit lives on in the passage of the Economic Stimulus Package – the $8,000 that homebuyers receive does not have to be repaid.
I’m a little over-tired, I’m not a CPA, and I didn’t sleep at a Holiday Inn Express last night, so I’m open to thoughts and corrections from others. What I do know is that I get to meet with two homebuyers this morning and give them 3 very good reasons why they need to buy a home before December 1st. And given how often this measure has changed in the last week, I’m going to recommend that they do it sooner than that.
Like maybe this week.