Homebuyer’s Tax Credit Extended

In a bipartisan manner rarely seen, the original tax credit plan for homebuyers set to expire November 30, 2009 was extended to April 30, 2010. The bill, which was passed unanimously by the Senate and by the House with a vote of 403 to 12, was approved as part of a $24 billion economic stimulus plan lobbied by the Obama administration. The tax credit bill hopes to put into place provisions that will rebuild the American middle class during the current recession, and also extends unemployment benefits to the longtime jobless and provides tax credits to some businesses.

For homebuyers, the tax credit is a welcome relief. Residential real estate is often the first and hardest hit during an economic downturn, and the tax credit promises to be a boon to sellers. The tax credit is tailored toward the middle class, and places an income limit of $125,00 for individuals and $225,000 for married couples. The bill provides a 10 percent tax credit of the purchase price for homebuyers purchasing their first home, and is capped at $8,000. Home purchase price is also limited to $800,000 to qualify. Additionally, the bill allows a credit of $6,500 to homeowners who have lived in their homes for five consecutive years and are looking to relocate. Homebuyers purchasing from a descendent or ancestor are not eligible for the tax credit.

For economists, the tax credit is an important step toward mending the housing crisis, yet doesn’t solve the main problem of underemployment in the United States. If Americans don’t have enough income, or can’t get financing, then they aren’t purchasing homes to begin with. The bill, however, has a limited time limit to test its effectiveness. A housing contract must placed before May 1, 2010 and closed by June 30, 2010 for the tax credit to be applicable. The tax credit will be put to the test in the months to come, and when it expires in April the Obama administration will reevaluate its impact on the housing market.

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