John Kelly
(651) 238-5649

Tax Credit Extended


Posted on Sunday, November 29th, 2009

The $8000 tax credit for first time buyers was scheduled to expire on December 1, 2009.  This would have hurt an already slow real estate market.  Now the tax credit has been extended and improved!

To claim the credit, homebuyers must sign a contract by April 30, 2010 and close by June 30, 2010.  For the first time, many current homeowners will also be able to use the credit:  In addition to extending the $8000 credit for first time buyers, there is now a $6500 credit for owners who have owned and occupied a residence for at least five out of the last eight years.  The income limits were also raised.  Single buyers can now earn up to $125,000 and a married couple can earn up to $225,000.

The new tax credit will help our market in more ways than the old credit did.  By limiting the tax credit to first time buyers, the old credit didn't do much to help sell middle to upper bracket homes.  In my work as a Saint Paul area Realtor, most of my first time buyers purchase more moderate starter homes.  It is not surprising that in 2009, entry level homes sold much better than more expensive homes.  By increasing the income guidelines and expanding the eligibility guidelines, there will be more buyers for homes in a variety of price ranges.

I had expected the old credit to be more effective.  Throughout most of my 22 year career selling St. Paul homes,  whenever I sold a starter home to some first time buyers, it initiated a whole chain of events:  The sellers would buy another home, and the next sellers would buy another home, etc.  But recently, there have been  many foreclosed properties for sale.  Because of this, many of the purchases made by my first time buyers didn't help anybody else buy a new home.

Many of my conservative friends hold a dim view of the tax credit.  They are especially upset with expanding the credit to more affluent people who already own a home.  In their view, these individuals are perfectly capable of buying a home without any help from the government.  They believe that the credit will simply go to people who were going to buy a home anyway. But I have had a different experience over the last 2 years.  I have gone on listing appointments to many beautiful homes in desirable neighborhoods.  A casual passerby would assume that nobody in that neighborhood could possibly need any help.  While it is true that most of them make an income that will allow them to purchase another home, many of them can't find buyers for their own homes.  I have heard hundreds of stories of job opportunities that were missed because people couldn't sell their homes and relocate.  I believe that the effectiveness of the current tax credit will be measured in what it does to help people sell their homes and not just in what it does to help people buy homes.

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