Homeowners can find cash with the homeowners tax credit

Benefits of the tax credit

Homebuyers can find cash today with the $ 8,000 first-time homebuyer tax credit. The credit is the showpiece of the 2009 American Recovery and Reinvestment Act. It was designed by the government to boost housing sales and help spur the market to recovery. Projections are that the plan was successful. Chief economist for the National Association of Realtors Lawrence Yun said, “According to our projections, homebuyers will purchase an additional 300,000 homes in the coming year as a result of the tax credit.”

Overall, the tax credit was a help to the nation’s recovery efforts. Yun said, “We think this year’s tax credit will certainly have a much bigger impact because it is a true tax credit which is also refundable. For instance, if you owe $ 1,000 in taxes and qualify for the first time homebuyers credit, you receive a tax refund of $ 7,000.” Yun believes the credit will continue to bring down housing inventories and stabilize housing costs.

Tax credit for first time homebuyers

There are rules along with the first-time homebuyer tax credit. Here are the main ones:

• It does not have to be repaid unless the home is sold within three years
• It is available to homes purchased between January 1st and December 1st of 2009.
• Restricted to individuals with AGI of $ 75,000 or more and couples with AIG of $ 150,000 or more
• The tax credit is for up to 10% of the purchase price, to a maximum of $ 8,000
• The credit can be taken in 2008
• It applies to first-time homebuyers, or those who have not owned a home in three tax years

The filing exceptions to the tax credit are:

• Those who closed on a home prior to April 15, 2009
• Those who got an extension to file taxes
• Those who filed an amended return

Critics and complainers

Though many financial experts are in support of the tax credit, there is still a portion of analysts who don’t believe it is the easiest way to find cash today. A Certified Financial Planner for the Wise Investor Group, Greg Smith, opines the tax credit is an incentive to buy, but buyers need to be realistic about the benefits of the tax credit. He said, “This incentive only works for people who have complete job security, who know they won’t be transferred within three years, who qualify as first-time homebuyers and have the ability to obtain financing. They must also live in an area with reasonable housing prices.”

Michael Dooley, another financial planner in Beverly, Massachusetts, agrees. He said, “While the theory behind the tax credit is great, I just don’t think $ 8,000 is enough. The people who would benefit from this the most are looking to survive financially or are even leaving their homes because they can’t afford them.” The tax credit was meant to cover 10% of the home’s purchase price, but surveys show that in reality it’s only covering about 4%.

Performance thus far

Although there are detractors to the tax credit who don’t believe it is the answer to finding cash today as easily as it was supposed to, it still is allowing buyers to purchase homes. The real job of the tax credit was to benefit first-time homebuyers and spur them into action. The tax credit has done that and can’t be deemed a failure yet.

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Congress looks to extend credit despite problems

WASHINGTON – Evidence of potentially widespread abuse won’t deter lawmakers who want to extend a popular tax credit for first-time homebuyers.

The Internal Revenue Service has opened 107,000 examinations of questionable claims and identified 167 criminal schemes involving the tax credit since it was expanded as part of the economic stimulus package enacted in February.

Lawmakers said Tuesday they might add protections to help prevent fraud. But there is a growing consensus among congressional leaders that the housing market is still fragile enough to justify extending the program beyond the end of November, when it is scheduled to expire.

House Majority Leader Steny Hoyer, D-Md., said he favors extending the existing credit through the end of the year as lawmakers work to “find out about how ethically and how honestly this policy is being pursued.”

Senate Banking Committee Chairman Chris Dodd said, “We still need to use every tool at our disposal” to help the housing market. Dodd, D-Conn., has joined Sen. Johnny Isakson, R-Ga., in sponsoring a bill that would extend the credit until June 30 and expand it to people who already own homes.

The existing credit allows qualified first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. Homes purchased after Jan. 1 are eligible. The full credit is limited to single filers making less than $75,000 a year and joint filers making less than $150,000.

About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.

“The housing market would not have moved without this tax credit,” said Lucien Salvant, spokesman for theNational Association of Realtors. “It’s a fragile recovery, which is why we think it should be extended.”

It would cost about $1 billion a month to extend the existing credit. The bill sponsored by Dodd and Isakson would cost $16.7 billion, according to congressional projections.

The IRS began special screening procedures for tax returns claiming the credit after it was enacted, said IRS spokesman Frank Keith. For example, taxpayers who previously claimed the mortgage interest deduction would warrant a second look if they claimed the first-time homebuyers credit, he said.

“We have a number of filters in place that we’re using to ensure the claim does not go out to people who are not entitled to it,” Keith said. But, he added, “Just because we’ve opened up a return for examination, we may very well find that many of these are perfectly proper claims.”

Keith said IRS officials have talked with lawmakers about finding better ways to run the program. The House Ways and Means Oversight Subcommittee has scheduled a hearing for Thursday on the administration of the tax credit.

“I am pleased that more than one million taxpayers claimed the first-time homebuyer credit,” Rep. John Lewis, D-Ga., chairman of the subcommittee said in a statement. “However, I am concerned about recent reports that there have been fraudulent schemes.”

Lewis said the hearing will examine whether the IRS needs additional tools to run the program.

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