$8000 Credit extended – $6500 Credit introduced

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photo credit to Infrogmation
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President Barak Obama is poised to sign a measure today that will extend and expand the first time home buyer tax credit, extent federal unemployment relief, and expand upon available business loss deductions.

The U.S. Senate anonymously approved the measure on Wednesday and the U.S. House of Representatives followed suit on Thursday to pass the extensions by a vote of 403-12.

Is it Retroactive?

**UPDATE** For clarification on exactly who is eligible, read:  Is The $6,500 Homebuyer Tax Credit Retroactive for Existing Non-First Time Home Buyers?

First thing’s first… is this bill retroactive?  A lot of people want to know!

As far as I can tell from the research I have done, the bill is NOT retroactive.  The wording in the amended H.R.3548 goes like this, “shall apply to residences purchased after the date of the enactment of this Act.”

Bummer for a lot of preexisting home buyers who could have used it… including me.

What Credits Did the Measure Extend?

  • The original $8,000 credit given to first time home buyers will be extended for an additional 6 months with a new claim deadline of April 30th, 2010.  The credit benefit deadline was previously set to expire on November 30 of this year.  To claim the credit, use Form 5405 which you file with your original or amended tax return.
  • Unemployment benefits were extended an additional 14 weeks for those who have exhausted their federal aid or will do so by the end of the year.  In states where the unemployment rate is at or above 8.5% the benefits were extended an additional 20 weeks.  The federal aid kicks in after the initial 26 weeks of state benefits are exhausted.

Who Was the Credit Expanded to Include?

  • A $6,500 credit will be extended to include home buyers who have lived in their current home for at least five of the last eight years.
  • The measure also raises income limits for those claiming the credit to include individuals earning up to $125,000 a year and couples earning $225,000 a year.  The previous limits were $75,000 and $150,000 respectively.
  • Please note that… any home owner who sells the home or ceases to use it as a primary residence within three years of purchase must repay the credit.
  • Any struggling business can now deduct losses for 2008 and 2009 from profits in five previous profitable years.  It was originally two previous profitable years and was extended only to small businesses.
To Be Eligible for the home buyer credits… buyers in both groups have to have signed a purchase agreement by April 30, 2010, close on the home by June 30, and must use the home as a principal residence.

Should the Government Have Extended Benefits?

This will be the 4th extension of the original $787 billion stimulus law (enacted in quarter four of last year) passed by the federal government in the past 18 months and will stretch the federal aid from 79 weeks to a record 99 possible weeks!  This amount of government intervention in unemployment aid is unprecedented in all past economic downturns, showing once again the severity of the current recession.

Although most taxpayers will take advantage of the extended credits, many are wondering where the government is getting the money from.

According to The New York Times,

Expanding the home buyers’ credit will cost about $11 billion, and the business loss deductions $10.4 billion. To pay for that, Congress further delayed a 2004 tax break for multinational corporations’ worldwide interest expenses that has never taken effect, “saving” $20.1 billion over the coming decade.

The $2.4 billion cost of the jobless benefits will be paid by extending into 2011 a surcharge on employers of $14 a worker that was enacted three decades ago as a temporary step.

What Do You Think?

Are you happy the tax credits have been extended?  Are you worried about where the money is coming from?  Are you both happy and worried?

Chime in now.

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.



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1 Matt Jabs

You’re not the only one Jeff. I for one would like to see the gov’t bow out of financial market matters and worry more about relearning how to run their own operations more efficiently.

2 Angie

What is the US coming to? This is the worst idea ever. Tax credits are just encouraging people to make poor decisions on buying a home. I have 156k in debt remaining and am soon to be unemployed. But still I’m trying to figure out ways in my head to afford a down payment. Roll over my 401k to IRA then remove then take my e-fund. Might be able to squeeze the 5% for an FHA loan. Then I can boost my debt to around 400k! Now do you see why this is a HORRIBLE idea? Its convincing even generally level-headed people to scrape by as much as they can so they can get the “free” money.

Don’t get me started on unemployment benefits. 99 weeks is insane. It gives people no incentive to even find part time work because they lose their benefits. They are getting paid to stay home. I’m sick of the stories on CNN about people taking their dream soul-searching vacation with their savings, yet still receiving unemployment. Its ridiculous.

3 Financial Samurai

I’m for the extension. We’re already spending billions and billions already, what’s another $100 billion here and there?

Now the next step is to extend unemployment benefits by another 6 months (I’m strongly FOR this, seriously) as being unemployed now is horrible. Employers pay into the program while we work, so we deserve it back, just in case.

Finally, the gov’t needs to raise the $8,000 tax credit for ALL people, not just singles earning $125K or less, and couples earning less than $250k. That’s just plain wrong!

Equality for all!

FS

4 Paula Jo

I feel sorry for those people they jump on buying a home for the $8,000 First Homebuyer Tax Credit without really thinking about they will have to pay for their home for many many years without receiving another big gift from the governement. I’m not al all saying people shouldn’t try to buy an own home but people should think carefully about if the also can afford what they are thinking about to buy.

5 Larry

Well we closed on the 6th (date it was signed, thinking we would be able to benefit), and one page interpreting all this said “date after” would be on the 7th which would suck if we missed out because we closed the date this was made into law. We meet all the other qualifications and we closed a few hours after it was enacted, sigh.

6 Matt Jabs

Wow Larry… go figure right? Sounds like a case of Murphy’s Law.

Well, at least you are in a healthy enough financial position to take advantage of low housing costs right now… regardless of the credit, it’s a great time to buy if you have the dough!

Congrats.

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