U.S. Congress has been busy wrangling with the Housing and Economic Recovery Act for a long time and understandably so. It's a mammoth undertaking and requires lots of debate and compromises and just good old-fashioned work. The midnight oil type of stuff. It's designed to help the struggling real estate and mortgage markets in particular, but also the overall economy to get back on two solid feet.
At least one provision in it is causing heart palpitations in those who are seeking more help for homeowners facing foreclosure.
The issue in question is the tax credit that would give home buyers a credit toward their income tax obligation. To qualify for it the buyers cannot have owned a principal residence in the last three years, in essence close to being a first-time buyer. They can credit either of $8,000 or 10% of the sales price, whichever is less, against the income tax they owe on the purchase year. The credit will gradually decline for single filers at $75,000 and for married couples filing jointly at $150,000. Now here is the thing. The credit has to be paid back in the following 15 years, starting in the second year, and it's done incrementally. These are the main features of the program.
How much does this do for the current housing mess? Not much I'm afraid. The tax credit is more or less for the first-time buyer which is a relatively narrow market segment. Its impact as a demand stimulus to the present agony would be minimal. Moreover, to figure it all out on a tax return just adds more laborious paperwork to the process. Anyway, the time spent drafting this tax credit legislation might have been better spent on an initiative that would help pull the mortgage industry up from the mat.
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Provided by:
Esko Kiuru
Mortgage, real estate and apartment industry analyst
www.BluefoxToday.com - syndicated mortgage, housing and property management blog
eskokiuru@gmail.com
My cell: 702-499-1006
Great... let's make the IRS code even MORE onerous. It is already so bad that the IRS itself can't figure it out. Maybe the politicians need to look to a real solution for the economy in a broader way...
Esko,
Thanks for the post. These too little, too late policies - designed to stimulate the market seem to make the authors feel better about themselves. However, they do little for those in need of help.
Esko,
My accountant was laughing when she told me we would be getting some money back for the big stimulus program....you would think that they would think of a better way to compensate everyone in this mess instead of throwing us a half a bone. I'm grateful to get something but is it the answer? NO
Esko,
Talk about making a bad system worse. Today's tax credit with tomorrow's tax penalty. Which dumb**s thought this one up. We all know the worst thing you can give a politician is money, add to that power and all we have is confusion.
Informative post,
I must say that this new piece of legislation doesn't really make much sense to me. So I get to take the credit now, but I have to pay it back later? How is that helpful?
Lane,
Right you are. This would just complicate an already complicated process.
William,
It seems to be more of the feel-good variety from the politicians.
Neal,
This would be just a drop in the bucket, I'm afraid.
Fred,
It's puzzling how they came up with this plan.
DeAnna,
They are figuring that the market will soon recover, prices increase and homeowners can then afford to pay it back.
Your blog is always so informative. I doubt this will have much of an impact. I do think the fed has to raise rates, create a stronger dollar, in the hopes that oil prices will drop. Your thoughts?
June,
Thanks. This credit idea likely will have a minor effect on the market. The oil price issue is so complex that few, if any, know what's behind it all.