Real Estate - American Recovery and Reinvestment Act of 2009 Extends Home Tax Credits

By Mike Prenny

First and foremost today’s home prices across America and in our front yards are at decade lows. People are buying houses throughout the Bay Area for 20 percent to 50 percent of what they were selling for just a few years ago. In addition, we are seeing interest rates at or near historical lows. The average 30-year fixed rate over the last decade has been 7.5 percent much higher than rates available today.

Why are rates so low today? Because our government realizes that it is housing that will pull us out of this recession and therefore the major portion of its efforts has been aimed directly at housing. Rates are artificially low due to the fed’s stimulation via the American Recovery and Reinvestment Act of 2009, specifically its Mortgage Backed Security (MBS) buying program and First Time Home Buyers Tax Credit (FTHB).

The problem is the party is almost over. The program is set to end in March 2010. This will undoubtedly cause home loan rates to rise. Originally the FTHB’s tax credit was set to expire on November 30 of this year. But the fed recently announced that it would not only extend this program but loosen up the qualifications and broaden it to include "long-time resident" buyers as well.

All you need to do is file a form with the IRS after you buy your new home and they will send you a refund check for $8,000 (or $6,500). But remember, you'll receive the $8,000 (or $6,500) from the IRS after you purchase your new home, so you cannot use the funds to help with your down payment.

General Rules:

• A "first time home buyer" is defined as someone who has not owned a primary home in the last three years. If you are a "first-time home buyer," your tax credit will amount to 10 percent of the purchase price of your new home not to exceed $8,000.
• A "long-time resident" is defined as someone who has lived in the same primary home for 5 out of the past 8 years. If you are a "long-time resident", your tax credit will amount to 10 percent of the purchase price of your new home not to exceed $6,500.
• The tax credit does not need to be paid back if you continue living in the home as your primary residence for three years without selling it.
• The home must be purchased for less than $800,000 before May 1, 2010. If you sign a binding contract to purchase a home before May 1, you would need to close on the transaction before July 1, 2010.
• Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit
• You cannot purchase the home from a related party like a spouse, direct ancestor, or direct lineal descendent (child or grandchild); however, you can still qualify for the credit if you purchase a property from siblings, nephews, nieces, and others.
• If you are married, both spouses must qualify for the credit
• The credit applies even if you have co-signers on your mortgage loan
• The credit applies to 1-4 unit homes as long as you live in one of the units as your primary residence - you could live in one unit and rent out the others.

Mike Prenny is a SF broker/owner. He can be reached by e-mail at: info@iconcap.com.

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