We've all had a few days to think about the impact of the Housing and Economic Recovery Act of 2008 signed by the President. Like almost all major legislation, it has provisions to satisfy or annoy everybody—buyers, sellers, REALTORS®, lenders, government regulators and real estate markets in general.
The government giveth and taketh away…
Most comments I‘ve heard from members or read about in numerous publications relate to the new first-time buyer tax credit or the elimination of seller-funded downpayment assistance programs.
The first-time homebuyer provision is in truth a loan repayable over 15 years. If the property is sold again within 15 years, the remainder of the credit must be repaid at tax time. The credit is equal to 10% of the cost of the home, not to exceed $7,500. It may be used for any single family property that will be used as a principal residence.
A tax credit reduces income tax liability on a dollar-for-dollar basis. For example, when my income taxes are prepared for the year, I buy a qualifying property, and I owe $1,000. When the tax credit is applied, I receive a payment of $6,500 from the government (based on the maximum credit of $7,500).
The full amount of the credit is available for individuals with adjusted gross income of $75,000 or less ($150,000 on joint return). The purchaser and spouse may not have owned a principal residence in the three previous years to qualify. The home must be purchased between April 9, 2008 and July 1, 2009.
This provision is an incentive for homebuyers waiting for even better deals to get off the sidelines and back into the housing market.
The Act also prohibits seller funded downpayment assistance or assistance from someone who financially benefits from the transaction, effective October 1, 2008. Legislation has already been introduced in Congress to overturn this provision. Its outcome is uncertain at this early date.
Assistance from family members, government-sponsored programs or gifts from nonprofits will still be allowed.