In a vote-gaining, economy-stimulating, home-market-reviving move, the Senate is getting ready to put the official “yes” on the new homebuyer tax credit. That official affirmative could come as early as the weekend. Nobody is totally certain on the details, but here is a past, present, and future perspective of what things look like.
Past: What kind of an impact did the original tax credit have?
The original first time homebuyer tax credit made a big splash, no doubt. It offered a tax credit of eight thousand dollars to any buyer purchasing their first home. The credit was only for those who earned up to $75,000 (for singles) or $150,000 (combined income for couples). According to the analysis, the tax credit, ending in less than a month, had an extensive ripple effect on the economy. It began with first-time homebuyers, many of whom were enabled to purchase a home for the first time. The effect spread to others in the housing industry. Despite the benefits, the first-time homebuyer tax credit wasn’t able to reverse the economic bête noir.
Present: What does the current tax credit look like?
Politicians, both Democrats and Republicans, plus financial professionals, both liberal and conservative, converged on a decision to reinstate the tax credit. The new-and-improved version for 2010 has some significant improvements and expansions. The hope is that it will prompt an even greater economic impact. Here’s what it looks like:
· The original $8,000 tax credit for first-time homebuyers will be extended.
· First time homebuyer income levels are raised. Now, buyers’ income must be $125,000 or less for individuals and $225,000 for couples.
· Home sales must be signed, if not closed, by April 30, 2010 in order to qualify for the credit. The closing must take place before July 1.
· In a daring new move, Congress is set to approve an enhancement to the current plan. Now, move up buyers—previous homeowners who are looking to purchase a bigger or better home—will also qualify.
· The tax credit for move up buyers is $6,500.
· In order to qualify, the move up buyer must have been living in his or her current residence for at least five years.
· The income cap for move up buyers is the same as for first-time homebuyers—$125,000 and $225,000 for individuals and couples, respectively.
Future: What will be the impact of the revamped tax credit?
Since no crystal balls are forthcoming, nobody can say for sure. All we can say with confidence is that the bipartisan atmosphere is optimistic. Naysayers exist, as they always, do. However, most of the naysaying focuses on the tax credit price tag— $10 billion by most estimates—rather than on the long-term economic impact of the program. As the bill makes its progress through the government, we can anticipate a noticeable uptick in the real estate market rather soon.
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