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Congress Plans to Extend the First-Time Home Buyers’ Tax Credit

This article was written by in Real Estate and Home. 19 comments.


The $8,000 tax credit for first-time home buyers is set to expire at the end of November, but lawmakers don’t want this benefit to end. While there have been some positive signs in the real estate market, the current credit hasn’t done much to stimulate house prices or the economy overall. All year, some senators and representatives have been suggesting improvements designed to further jump-start the real estate industry, none of which have been passed yet. Here are some of the enhancements they have been considering.

  • Extending the deadline from November 30, 2009 to May 30, 2010 or November 30, 2010.
  • Expanding the credit to all home buyers rather than just those who have not owned a house in the past three years (otherwise known as “first-time” home buyers).
  • Increasing the credit from $8,000 to $15,000.
  • Eliminating the income cap for qualification of $75,000 (or $150,000 for married filers).

These changes, if signed into law, would redirect the focus of the credit from the average consumer who needs a little boost to purchase a primary residence to investors and speculators. Flippers would still be discouraged because the bills currently under consideration in the House and the Senate both call for paying back the credit if the house is sold within two years or if the purchaser is not a primary resident sometime within two years.

For many people, $8,000 is not a big enough incentive to buy a house if they aren’t financially ready to do so. I don’t think increasing this to $15,000 would change much. This credit, if the changes become law, is a bailout of the housing industry, just like Cash for Clunkers was a benefit for the auto industry.

Updated December 26, 2010 and originally published September 18, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 19 comments… read them below or add one }

avatar usul356

I will admit that I’m definitely taking advantage of this tax credit, but I wonder who it really helps. I don’t think the government ever really thinks about the negative effects of their plans. This one has been good to help the realtors and sellers. It seems like it has hurt anyone that has a house or apartments for rent or lease.

In my apartment complex that I’m moving out of, there’s only one guy left out of four in my little section. I can’t say for sure how many of the others thought it was a good time to move out because of the tax credit, but I certainly thought so. Prices haven’t gone down for houses in my area, so I know it’s not that. I think it would be interesting to see a study showing how many people used this credit to help buy houses that used to be renting and a comparison of how the rental business is doing.

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avatar Mike

I purchased my second house back in April after selling our townhome, so I will not be able to take advantage of this credit. My sister lives in upstate NY and is planning on closing on a house the first week of October. I know this frist time homebuyer tax credit was a huge driver in her wanting to purchase and close on a home prior to Dec 1st of this year. Thanks for the info and great website, as usual Flexo!

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avatar Brian

I’m taking advantage of it and it will help immensely. I’m certainly not part of the “housing industry.”

To boot, I’m getting a mortgage rate of 15 year of 4.72%. My payments will be just under $600 including home owners insurance.

The tax credit will help take care of the mortage application and then some. I’m glad it’s there.

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avatar Steve

I for one am sick of congress playing god. They chose the car industry and the real estate industry to get a shot in the arm, but why those? Why not the restaurant industry, since we’re a “service economy” that’s one of the biggest chunks right? Or the software industry? Or the health care industry? Oh wait, they’re working on that one :)

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avatar Ellen @ MoneyLounge.net

The benefit to the stimulation of the housing industry trickles down into so many other industries. Once you buy a house, you need furniture (production of the funiture > retail stores to sell that furniture > raw materials to create the furniture…). You also need utilities (energy companies > maintenance of facilities for energy > advertising that company…). And so on… There are so many other industries that benefit from this tax credit. That is the main reason there is a big push to extend this. Personally, I think it is a good thing. It also returns a lot of money to the government to pay off the debt assumed to pay for the credit.

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avatar usul356

Not necessarily Ellen, what if you were renting? In my case, I already had all my furniture and utilities and so on. True I will probably get more since I have an extra bedroom now, but it just doesn’t seem so cut and dry.

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avatar Steve

Any stimulus would benefit multiple industries. The housing industry is no more special than any other!

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avatar Dan

Yeah, I’m with the author in that the $8k credit isn’t enough to get me to buy a house when I’m not ready to. “Eventually” I am preparing to buy a house — when the credit was announced, I thought about whether or not it was enough to get me to spring into action now. Well, not really. In my area, I fully expect to pay a minimum of $200k for a house. To get me to buy now, I’d have to get a substantial discount, along the lines of 20%, to make it worth it.

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avatar thisisbeth

I think the plan for 2008 was better: making it an interst-free loan, so to speak, but making people have to pay back the tax credit. While I’ll be taking advantage of this “free” money, I really don’t think it’s the best plan for the future. The interst-free loan should be enough incentive for people looking to buy.

Really, I think it will drive up house values by $15,000. Because all sellers know that all buyers will get $15,000, they can add that to the price.

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avatar Julie

This. I’d love to drive up house values, but I don’t want the government to do it by subsidizing these industries. Also, it will have the same effect as the mortgage interest deduction – encourage people to buy a more expensive house than they might have otherwise.

I’d love some sort of reward for people who bought homes they could afford, haven’t continually refinanced to spend all their equity, are making payments on time each month (complete with extra principal), have watched the value of their homes drop thousands or tens of thousands of dollars, but can’t have their rate adjusted because they’re not “struggling.”

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avatar daub815

If the credit gets increased to $15,000, will the people who already bought a house get $15,000 or the original $8,000?

Where did you read that they were extending it? I don’t see a link to where you got the information.

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avatar Luke Landes ♦127,435 (Platinum)

H.R. 1245 and S. 1230, and it’s been in the news.

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avatar Gone

This will simply delay me buying a house — and I have been looking — and I have the cash and credit needed. I want to buy when the market is not distorted. If I were a seller, I would simply raise my price up by the amount of the handout. It’s not a boost for the buyer; it’s a boost for sellers — many, many of whom are banks. Many of these banks have been holding properties off the market in yet another attempt to artificially support prices. This is shameful behavior by the government and the banks — or should I say the ‘goverbanks’

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avatar Gone

One more thing — all the government’s efforts to reflate the house price bubble will have the added effect of allowing many states and municipalities –many of which are STRAPPED right now — to raise your property taxes. This is yet another affront to those of us who were prudent with money and didn’t become a housing speculator or use our bubbly house as an ATM. For the hypothetical person who has paid off their home and is debt-free, the huge run up in prices – and along with that taxes – means that they are subsidizing all of those who took risks and failed. It’s a wonderful lesson for any young person actually paying attention: you are rewarded for being in debt; it’s ok to take money from responsible people and give it to irresponsible people; lying on applications can lead to free money; maintaining a high credit score is your ticket to wealth — through debt of course! We are not the same people we were even 30 years ago.

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avatar Brian

To “Gone,” can you supply some facts for your claims?

Some of what you have to say is good, namely the last few comments in your second post. However, your first post has no facts to support the claims.

Indeed housing prices *are down* contrary to your reality and 8k really won’t go that far. It will help with the mortgage application, closing costs and the agent and that’s probably about it aside from a few months payments. I was totally unaware that houses were selling like hotcakes.

It’s going to help me enormously and I don’t think I’m the exception to the rule either. Don’t buy, it’s your loss.

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avatar Gary Thomas

Hey Flexo,
I’ve been gone for a couple of months but have returned to help in any way I can. I’ve misplaced my article citing paragraph and verse but I’m sure folks qualify for the tax credit as long as none of the buyers has owned a home for the 36 months prior to purchase. I suppose that can be easily verified by the IRS by just looking at one’s tax returns to see if any mortgage interest was taken as an itemized deduction. Is there any other way to prove you haven’t owned a house for 3 years, like when a person only took the standard deductions w/o itemizing any mortgage interest? Was it determined while I was gone that a copy of the settlement sheet should be attached to form 5405 when mailing it to the Feds?

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avatar DEE

why is irs holding on to the $8000.00 after a person buy a home, some time useing all they have for a bown payment frist 16 weeks than 45 and now a year. I dont think this will help the economy much and I domt think this is what the president ment.I think the President should tell them to give people there money of start paying interest on the money just like we have to when we owe taxes I know some people who close in june of 09 and have not got there money yet.even if you owe taxes take the taxes out as send the rest treat people the way you would to be treated if it was your money.

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avatar Bring

Dee, I found your comment very hard to read and follow. I gather what you’re saying is that we should get the 8k tax credit back immediately upon closing or soon thereafter.

I don’t know why exactly we have to wait but considering we are receiving such a large sum of money I can understand the wait. It’s no big deal for me to be honest.

And BTW, my mortgage rate was locked in at 4.25%. I’m very stoked.

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avatar Bring

In addition, there have been fraudulent claims with this tax credit unfortunately. So right there, I can understand the wait. More power to them so they can better ascertain if indeed one legally receives the credit.

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