Tax Edge

By Paula Cruickshank and George Jones, TaxEdge News Staff

The White House is looking seriously at proposals to extend the first-time homebuyer tax credit, according to one of President Obama's chief economic advisors. Extending unemployment insurance benefits is also under consideration, Council of Economic Advisers Chair Christina Romer said in a brief interview at the White House on September 11. More than 20 House and Senate bills have been introduced to expand, extend or modify the tax credit, which expires on November 30, 2009. Most have been referred to the House and Senate tax-writing committees.

The current first-time homebuyer credit is equal to 10 percent of the purchase price of a principal residence, up to $8,000. It applies to homes purchased after December 31, 2008, and before December 1, 2009. The credit phases out for single individuals with modified adjusted gross incomes above $75,000 ($150,000 for married couples filing joint returns). The current first-time homebuyer credit represents an extension and enhancement by the American Recovery and Reinvestment Act of 2009 of the original $7,500 maximum first-time homebuyer credit enacted under the Housing Assistance Tax Act of 2008 for purchases after April 8, 2008.

While the first-time homebuyer credit does not expire until November 30, first-time homebuyers have little time left to find a suitable residence to qualify for the credit, as do sellers who hope to market their homes using the first-time homebuyer credit as an incentive. The reason is that the credit provision requires that the residence be "purchased" by November 30, with "purchase" defined as taking place when title passes and the full purchase price is paid (that is, at the closing), and not earlier when the contact of sale is executed and a down payment is escrowed. The tight credit markets have compounded the due-diligence paperwork and the resulting time it typically takes to obtain a mortgage. A span of two months or more between a mortgage application and title closing is now not unusual and, typically, beyond the control of either the purchaser or the seller.

Therefore, if you are intending to take advantage of the current credit, now is the time to finalize your search for both house and financing so that your transaction can be completed by the November 30 deadline. Otherwise, you will have to hope that the credit is extended through the passage of a new law.

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Posted October 3, 2009.