First Time Home Buyer Tax Credit.

The Housing and Economic Recovery Act of 2008, H.R.3221, that President Bush and Congress just enacted a couple of weeks ago can be a bit confusing. One of the most significant and timely part of the Act is the First Time Home Buyer Tax Credit. In going over the document, our Broker/Owner John Bendall has shared with us a nice neat outline, as follows:

First-Time Home Buyer Tax Credit Fact Sheet

Who is Eligible

• The $7,500 tax credit is available for first-time home buyers only.
• The law defines a first-time home buyer as a buyer who has not owned a home during the past three years.
• All U.S. citizens who file taxes are eligible to participate in the program.

Income Limits

• Home buyers who file as single or head-of-household taxpayers can claim the full $7,500 credit if their modified adjusted gross income (MAGI) is less than $75,000.
• For married couples filing a joint return, the income limit doubles to $150,000.
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
• The credit is not available for single taxpayers whose MAGI is greater than $95,000 and married couples with an MAGI that exceeds $170,000.

Effective Dates for the Tax Credit

• First-time home buyers would receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 and before July 1, 2009. To qualify, you must actually close on the sale of the home during this period.

Tax Credit is Refundable

• A refundable credit means that if you pay less than $7,500 in federal income taxes, then the government will write you a check for the difference.
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $2,500 payment from the government.
• If you are due to receive a $1,000 tax refund from the government, your refund would grow to $8,500 ($1,000 plus $7,500 from the home buyer tax credit).
• Buyers can take the tax credit in their 2008 or 2009 tax return.
• If you purchased the home in 2008, the tax credit is taken on your 2008 tax return. If you buy in 2009, you have the option of taking the credit on your 2008 or 2009 tax returns.

Types of Homes that Qualify for the Tax Credit

• All homes, whether single-family, townhouses or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a home in the prior three years. This also includes newly-constructed homes.

Payback Provisions

• The tax credit essentially serves as an interest-free loan to be repaid over 15 years.
• For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. However, the buyer doesn’t have to start repaying the credit until two years after the tax year in which the credit is claimed.
• If the home owner sold the home, then the remaining credit would be due from the profit of the home sale.
• If there was insufficient profit, then the remaining credit payback would be forgiven.

For more details on the tax credit, go to: www.federalhousingtaxcredit.com

Basking Ridge Real Estate Market Update: Market Bottom?

More good signs that the Basking Ridge Real Estate Market may be forming a bottom. Not only were Pending Homes Sales up for June in Basking Ridge (and nationally), July's Pendings had an even better showing. While pending home sales this year are behind the last few years' pace in a month to month comparison, the last couple of months have posted more comparable numbers; click the chart to get a better view. As consumption has improved throughout the year, the market absorption rates have continued to improve. Houses priced between $600K-$1.5M currently have between a 3-4 month absorption rate. While housing prices are by no means rising, the rate of depreciation has decreased. New Inventory has slowed, further easing the downward pressure on prices. Again, this could be the early signs of the market bottoming; what unfolds over the next couple of months will shed more light on the situation. We will continue to monitor the local market and keep you posted.

Pending Home Sales Up!

The National Association of Realtors reported The Pending Home Sale Index rose 5.3% for the month of June to a reading of 89.0. The index is a forward looking indicator based on contracts signed during the month. While still lagging 12.3% behind last June number of 101.4, it is the highest reading for the index since October of '07, of 89.8. According to Lawrence Yun, NAR chief economist, “The rise in pending home sales was broad-based with all four regions showing gains. This is welcome news because a rise in contract activity is necessary for an overall housing recovery. With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009.”