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Ask the Expert—
Homebuyer Tax Credit Extension & Financial Reform Bill

Ruth Gaon, CEO

Q:  Before we get into the recent headlines about the Federal Housing Tax Credit, can you tell us what exactly the homebuyer tax credit is?

A:  There are several versions of the credit depending upon when the home was purchased but the versions which are relevant to the recent headlines include:

• For homes purchased in 2009 prior to November 7, the credit is for a maximum of $8,000 and, with some exceptions, does not have to be repaid, but it's only for new homeowners who have not owned a home in the prior three years.
• Beginning November 7, 2009, an additional category of new homebuyers, long-time residents (who owned their own homes), was added. The credit for this group is a maximum of $6,500, which, with some exceptions, does not have to be repaid.

In both cases, the purchasers must have entered into a binding contract on or before April 30, 2010, and closed by June 30, 2010.

Q:  How is the amount of the tax credit determined?

A:  For first-time homebuyers in 2009 or early 2010, the tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.  For repeat buyers, the tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.

Q:  What types of homes qualify for the tax credit?

A:  Any home that will be used as a principal residence qualifies for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

Q:  So why is this homebuyer tax credit making recent news headlines if it has been available since 2009?

A:  Legislation enacted in July 2010 extended the closing deadline from June 30 to September 30, 2010, for eligible homebuyers.

Q:  Does the recent legislation change the qualifications for the tax credit?

A:  No.  It is important to note that the legislation simply extended the CLOSING deadline of the tax credit.  You must have bought — or entered into a binding contract to buy — a principal residence on or before April 30, 2010.  If you entered into a binding contract by April 30, 2010, you must close (go to settlement) on the home on or before September 30, 2010.  

Q:  What’s the purpose of extending the closing deadline from June 30 to September 30 if it only affects those who have already purchased a home?

A:  A jump in sales produced a backlog of paperwork that kept some homebuyers from completing transactions by the June 30 deadline. According to Lucien Salvant, a spokesman for the National Association of Realtors, as many as 180,000 home buyers might be helped by the extension.

Q:  How should those who qualify for the tax refund go about claiming it?

A:  According to the IRS, special filing and documentation requirements apply to those who are looking to claim the homebuyer credit. "To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties' names and signatures if required by local law, the property address, the purchase price, and the date of the contract," the IRS added.  Eligible homebuyers should also include a copy of the settlement statement, an executed retail sales contract, or a certificate of occupancy with their returns.

Q:  How popular has the homebuyer tax credit been?

A:  Nearly 3 million taxpayers claimed the tax credit through May 22, claiming more than $21 billion, according to the Treasury Department.

Q:  How beneficial has the tax credit been?

A:  Right now the jury is still out on how beneficial the homebuyer tax credit has actually been.  There are two trains of thought about the success of the credit.  Some believe the credit has just been pulling sales forward that would have taken place later; because those who were already in the market to purchase a house crowded their purchases into March and April in order to qualify for the credit, critics of the credit think the bottom will drop out with the credit expiration.  However, others believe the tax credit has stimulated the housing market, encouraging those who otherwise would not have made a purchase to go ahead and buy.  It is too soon to tell which of these is most likely the case.   

Q:  What other updates can you give us about new legislation that affects the financial industry?

A:  Last week, on July 21, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, legislation that introduces a series of sweeping regulatory reforms that substantially restructure financial regulations and provide consumers with new protections. 

Q:  What does the recent legislation address? 

A:  The legislation is mainly aimed at Wall Street and larger financial firms and seeks to help avoid a repeat of the country's recent crisis prompted by a meltdown of housing and mortgage markets. The legislation also addresses thrifts, deposit insurance reforms, hedge funds, credit rating agencies, executive compensation, and investor protections, among other items.

Q:  Will this new legislation affect HFCU and other area financial institutions?

A:  No, the new legislation is mainly aimed at Wall Street and larger financial firms.  The legislation establishes a consumer financial protection bureau, and credit unions with assets under $10 billion will not be examined by the new bureau once it is established.  A similar $10 billion credit union exclusion applies to rules that allow the Federal Reserve to set interchange fees for debit cards.  HFCU and some other local financial institutions fall under this $10 billion exclusion.