Sunday, February 8, 2009

The $15,000 Homebuyer Tax Credit - What It Is and What it Is Not

There is a $15,000 Tax Credit in the current version of the stimulus package, on which the Senate is expected to vote on Tuesday, Feb. 10. Senators Johnny Isakson (R-GA) and Joe Lieberman (I-CT) are the sponsors.

What the Tax Credit IS NOT:

--A Rebate. Buyers will not get a check for a lump sum merely because they purchase a house. A "rebate" is what citizens meeting certain income qualifications received last Spring/Summer, in order to go out and spend and help "keep" the economy out of recession.

What the Tax Credit IS:

---Buyers who purchase a house as a principal residence and owe taxes in 2009 or 2010 can apply 10% of the purchase price, or $15,000 (whichever is greater), toward owed personal income tax.

--If a buyer owes, say $3,000 one year and $4,000 the next year, the total credit is $7,000.

--If a buyer owes MORE than $15,000, the burden is his/her own.

--If a buyer DOES NOT owe any income tax, the buyer does not get the credit.

More Details:

This tax credit replaces the current $7,500 program, which is actually a loan repayable over 15 years.The tax credit will be available one year from the date of enactment. It may be used for new or existing home purchases. There is no income cap for the buyer. It is not just for first-time buyers. The buyer must use the house as principal residence for at least two years.

This program will work best for those in higher income brackets. If the family income is closer to the National Median of $58,000 or Charlottesville's Median of $68,000 for a family of four, chances are, few or no taxes will be owed. See the Bloomberg News report on this here. For an example of what the credit could do for a family in a lower income bracket, see this post, and look for of "John and Jane" in the middle.

Is there a "downside" to this Tax Credit?

It will cost +/-$40 Billion.

And as genius Calculated Risk explains:

The tax credit for existing homes does almost nothing to help the economy. Some might argue that this is more work for agents and home inspectors, and might help with furniture sales, but the impact will be minor.
The sponsors and supporters of this tax credit believe this will support house prices - a mistake because this will mostly just shuffle homeowners between homes, and not reduce the excess supply.
The key problem for housing is prices are too high. How does this tax credit help reduce prices? Why are we trying to artificially increase the turnover rate? And why are we targeting a tax credit at higher income individuals?

This tax credit seems ill-conceived, and probably should be removed from the stimulus package. No one has adequately explained how this helps "fix housing first".

Emphasis ours. Read the complete Calculated Risk post, which includes graphs, here.

See Senator Isakson's statement, given on the Senate Floor, here.

Here's a LIST OF CUTS from the stimulus bill, thus far.


downtownenvy said...

They can give tax credit all they want, but until prices come way down,no one is going to buy. Overall prices are still way too high for this kind of an economy. They are very out of line for salaries in the area. I hate to keep harping, but prices are what's keeping a lot of us from buying. wighti

Declan said...

downtownenvy you're a voice of reason. prices are way too high for this kind of economy *and* because a house is just a place to live nowadays not a way to make profit. there's a hiring freeze at UVA. the endowment's not done with its losses from uncalled capital commitments. there will be layoffs. of course it will start with staff. but its the kind of staff people who a few years ago would have considred buying one of the many condos or lower priced houses that are crowding the market at the lower end. in the middle, for here,that is, the middle price range is about $400-800K why would anybody bother moving now when they can't get a good price deal. outside of UVa it's not like there are suddenly going to be some great new jobs popping up in this area.

but you know what's going to happen with this tax credit. its going to be used as another version of It's a great time to buy.

imo, it's a great time to watch real estate theater of the absurd this spring.

Anonymous said...

I just drove by a house on Caroline, asking price 196,000. Overpriced, tax credit or not.

Since this house and many others have asbestos siding, can anybody out there give me a ballpark figure for asbestos removal.

Anonymous said...


I sure hope that the opinions you've stated here don't come to pass. If you have special knowledge of future plans at U.Va., maybe you should state them explicitly. Claims like "There will be layoffs" could be very unsettling if one assumes they are facts. I bet that you don't mean to alarm people without reason.

Real C'ville - The Bubble Blog said...

Downtownenvy, it would seem logical that in this area where many sellers and/or seller's agents truly believe that prices will go up, a tax credit will be used to preserve an asking price. There are potential buyers such as yourself, however, who aren't going to take the "bait." What Declan said: it's "another version of it's a great time to buy."

Anonymous, maybe an expert will chime in here, but this is just a starting point: apparently if the siding is in "good" shape, the thing to do is leave it alone. A thorough inspection should give you this info. However, you are prudent to figure this in as a future cost, because this is not a job that can be done by an amateur.

2nd Anonymous: We're going to assume that Declan is having a rant in the comments section and doesn't have specific info.

However, do you yourself have any reason to believe that UVa is immune to layoffs? During a recession? During a period when 25% of the endowment has vanished into thin air? During a period when the school has stated it is seeking additional sources of revenue? Perhaps Declan was around for previous recessions, when there actually were layoffs.

What we find more compelling than a layoff scenario is the observation that there aren't going to be any great new jobs popping up in the area.

The NGIC thing isn't panning out for local employment nor for homebuyers, as reported on the CAAR blog and Real Central Va blog. The people who will be employed in 2011 are being "imported" and are also currently living in around the DC metro area where housing values have dropped so much that many can't afford to sell, and certainly many can't afford to buy here.

So if you know of some new job opportunities now or slated for the next couple of years, please go ahead and post them.

declan said...