Home Purchase Tax Credits…What’s the Latest

Westcoe Realtors, Riverside California…We get asked almost every day by our clients about what the latest news is regarding the proposed tax credit for first time home buyers…so we thought a little information here could go a long way to answer a few questions.

First, it is critical that everyone understand the difference between the word “proposed” and “actual”.  So much has been tossed around in the media, and they fail to tell the average consumer that much of what the media is reporting is “proposed” (meaning not enacted yet, and may bite the dust at any moment).

As of right now, the only tax credit available to a first time buyer is a $7500 credit that must be repaid to the government at the rate of $500 per year for 15 years.  In essence, this is not a tax credit but an interest free loan from the government.  If the new buyer elects to take the credit, then they are required to repay the loan at the $500 per year, and if they sell their home before the 15 year payment date, then whatever is still owed to the government will be paid in full at the close of escrow on the home.  There is no interest due the government on this “credit”…but merely the repayment of the money at the $500 per year.  There are also beginning and ending dates (4/2008-12/2009), and the amount you can claim as the “credit” begins to phase out depending upon how much your net income is when you file your taxes ( you will need to check with your tax professional to see if you qualify)…and this is the only tax credit that is currently law as we speak.

Now for proposals and rumors floating around our industry.  It appears that the Senate has recommended as part of their stimulus plan that this current, $7500 credit be increased to $15,000, and that it should be a true credit, and not simply a loan that has to be repaid.  This would obviously be better for buyers since it would eliminate the repayment portion of the law, and it would also allow a buyer to deduct $15,000 from whatever their tax liability is in the year of the home purchase.  However, understand that this is merely a proposal at the moment, and has not been approved by either the House of Representatives or the President.  As of today, the Senate and House have a lot of wrangling to do over exactly what will be in the stimulus package, so who knows what will happen to this portion of the bill once all the politicians get through.  I mean after all, this is Washington we are talking about, so anything goes.

Most experts (what exactly is a Washington expert anyway) feel that this is a part of the stimulus package that both houses and parties can get behind, but anyone who tells you this is set in stone is wrong…it is merely part of a package that has yet to be approved.  I heard a commercial on the radio the other day where some lender was touting the $15,000 credit as a “given” and was even offering to send to any borrower the forms to fill out for the credit.  Whoa…a little too fast there.  Call me crazy, but I think it is better to tout this feature once it is approved.

The bottom line here is that something is coming, and there is no doubt that the current $7500 “credit/loan” will probably be amended…but a little patience here will go a long way.  Also, make sure that whatever you do, please check with a tax professional before you act on any one’s advice about tax issues.  Lenders, real estate agents, etc. all mean well, but the real source of accurate information for your own personal situation should be your tax professional.  Until then, be careful on what you can and cannot do, and don’t fall for those who only hype a non-approved possibility.