President Barack Obama has signed legislation extending the $8,000 first-time-homebuyer tax credit beyond its scheduled Nov. 30 expiration and creating a $6,500 credit for longtime homeowners who buy new homes. With thousands of dollars at stake, it's not surprising that potential homebuyers have lots of questions. We have the answers.
It's simple: The old credit was scheduled to expire Nov. 30, so folks who hadn't already signed a contract faced a daunting task to get a deal closed by the deadline. Some in real-estate were writing provisions into contracts making the purchase contingent on the deals closing in time for buyers to get the credit.
Under the new law, the credits are available to qualifying buyers who sign a binding contract by April 30, 2010, and who close by June 30, 2010. The two-month period should offer plenty of time for last-minute buyers to get to the closing table.
Are the rules the same?
No. There are a few differences that apply to deals closed after Nov. 6, the day Obama signed the bill. First, the similarities:
Now for the key differences:
How does the new $6,500 credit work?
This credit is available to qualifying buyers who sign a binding contract by April 30, 2010, and who close on a new home between Nov. 7, 2009, and June 30, 2010. To qualify, you must have continuously owned and lived in a home for at least five of the eight years leading up to the purchase of a new home.
If you have owned and lived in your current home for at least five years, for example, you can qualify. If you bought the home you're living in now less than five years ago, however, you won't qualify.
The credit is 10% of the purchase price, up to $6,500. As with the first-time-buyer credit, this one is available only for the purchase of a principal residence, not a vacation home or rental property. And if you sell the place or move out within three years, you have to pay back the credit on your tax return for the year you sell or move. Homes that cost more than $800,000 are ineligible for the credit.
Income-eligibility rules are the same as for the first-time-buyer credit. The right to claim the credit disappears as adjusted gross income rises between $125,000 and $145,000 on a single return and between $225,000 and $245,000 for married couples filing joint returns.
In a win for consumers, banks will have to secure customers' consent before charging exorbitant overdraft fees on ATM and debit card transactions, The Associated Press reportsIn other words: No more $35 charges against customers who accidentally overdraw their accounts for a $4 latte. The new Federal Reserve coomittee rules announced today require banks to notify customers of their overdraft services and give customers the option of being covered. If customers don't "opt in," any debit or ATM transactions that overdraw their accounts will be denied. The changes take effect July 1. Overdrafts fees for checks and electronic payments are not prohibited by the new rules.
Fed officials say banks earn as much as $25 billion to $38 billion annually from overdraft fees, the AP reported. That total includes check overdrafts."The final overdraft rules represent an important step forward in consumer protection," said Ben Bernanke. "New and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."
Legislation Headed to President Obama's Desk
WASHINGTON — The Senate and House are poised to agree on a compromise measure to extend unemployment benefits that also would expand a popular $8,000 tax credit for homebuyers, despite a recent government report on extensive mistakes and suspected fraud in the program.
The latest on President Obama, his administration and other news from Washington and around the nation.
The Senate might pass its version as early as Wednesday, and aides to Congressional leaders say the House could accept it this week, sending the bill to President Obama to sign into law. After weeks of partisan delay in the Senate, Democrats are eager to show progress before Friday, when the October jobless report is again expected to show high unemployment.
The homebuyers’ credit — enacted last year, expanded this year and scheduled to expire Nov. 30 — would be extended to cover homes under contract by April 30. Also, it no longer would be limited to first-time buyers; people who have owned a home for at least five years could get a $6,500 credit on a new residence. Income limits for eligibility would be raised, making many more people qualify.
Extending and expanding the credit would cost an estimated $11 billion, on top of the $10 billion spent so far. It would be a big victory for the housing and real estate lobby and for the Senate majority leader, Harry Reid, Democrat of Nevada, who faces a tough re-election race next year in the state with the most claims for the credit per capita.
Critics complain that most of the credits go to taxpayers who would have bought their homes anyway, which even the industry acknowledges. Also, a Congressional subcommittee released a Treasury Department report last month about suspected criminal and civil abuses of the program.
Government officials testified, however, that many of the problems may be due to confusion among taxpayers and the Internal Revenue Service about the overlapping 2008 and 2009 versions of the tax credit. With Congress likely to change the eligibility provision again, the new measure could present further administrative problems for the I.R.S., although the measure does include several new safeguards.
“It’s not unreasonable to think that this is going to provide some further challenges for them, both in terms of implementing a third version of it and in terms of ensuring taxpayers’ compliance,” said James R. White, director of tax issues for the Government Accountability Office.
The Treasury Department report said that as of Sept. 30, the I.R.S. had identified 167 suspected criminal schemes and was examining nearly 107,000 cases of potential civil violations.
While real estate groups and some economists say the credit has helped stabilize the housing market, critics say it is too costly a subsidy when low interest rates and home prices are incentives enough for most.
Of the 1.4 million claimants of the credit, fewer than a third — about 350,000 to 400,000 — are believed to have bought their homes because of the credit, according to independent and industry-affiliated economists.
Under the new legislation, individuals with income up to $125,000 a year and couples earning up to $225,000 would be eligible. The current income limits are $75,000 for individuals and $150,000 for couples. Under both the House and Senate versions, smaller amounts are available to people of slightly higher incomes until the credit phases out.
The expanded homebuyers’ tax credit was attached to a bill intended to extend unemployment compensation for up to 20 weeks for people who have been out of work for long periods. Another amendment would sweeten a tax break for businesses with net operating losses in 2008 and 2009.
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