Questions surround improved homebuying tax credit

WASHINGTON — Now that Congress has fixed the crucial flaw in last year's home-purchase tax credit, who will be able to make use of the new and improved version?

And what about timing: How long do buyers have to find a house and close the deal to qualify?

These are just two of the questions surrounding the $8,000 housing credit for 2009 authorized by Congress' sprawling, $789 billion stimulus plan.

So here's a quick rundown on the credit and several other real estate-related benefits in the package.

Though the Senate version of the bill would have created a much more generous and costly tax credit — up to $15,000 per purchase with no limitation to first-time buyers — it was quickly rejected in the conference committee.

Negotiators added $500 to last year's $7,500 credit and made the 2009 version nonrepayable. There's still widespread misunderstanding on the issue, but qualified purchasers who closed in 2008 will not reap the benefits of the 2009 amendments.

They're stuck with the old model and will have to pay back the credit — more correctly an interest-free loan from the government — over the coming 15 years.

People who buy homes between Jan. 1 and Dec. 1 of this year may qualify for the $8,000 nonrepayable updated credit. But they'll still have to pass most of the key eligibility tests imposed under the 2008 program.

For example, they must be "first-time" buyers under the 2008 definition: Either you've never owned a house before, or you haven't owned or co-owned one during the three years preceding the date you close on your 2009 purchase.

Carefully planning the timing of your closing could be worth thousands of dollars to you.

Say you once owned a house earlier in the decade, but sold it on March 25, 2006. If you close on a house this year before March 25, you lose eligibility for the $8,000 credit. Push settlement back to March 26 or later — anytime before Dec. 1, when the new credit program's eligibility period expires — and you're $8,000 to the better.

As in the 2008 credit, there's a household income test as well. The 2009 version phases out eligibility for the credit starting at $75,000 adjusted gross income for single taxpayers, and $150,000 for joint-filing couples.

The 2009 program also removes last year's prohibition against purchases financed with state and local tax-exempt mortgage revenue bond programs, which are popular among moderate-income homebuyers. This year such loans won't eliminate your eligibility for the $8,000 credit.

Under the 2009 program, the house you buy must be used as your principal residence, not a second home or investment property. But that residence can take a variety of forms, including, "houseboats, housetrailers, cooperative apartments, (and) condominiums" among others, according to the IRS rules.

Congressional sponsors of the revised tax-credit program offered no projections of how many additional home sales are likely to be stimulated this year by the nonrepayable feature, but the National Association of Realtors has weighed in with its own estimates: 300,000 more houses will sell during 2009 as a direct result of the credit.

Add in the so-called "ripple effects" — higher expenditures on furnishings, appliances, remodeling materials, brokerage commissions, moving costs, etc. — and the economic jolt could be significant over a relatively short period.

Other sections of the stimulus package that haven't received much attention, but still could benefit large numbers of owners and buyers, include:

• An increase in the maximum mortgage amounts permitted for funding by Fannie Mae, Freddie Mac and the Federal Housing Administration — essentially a rollback to 2008's high-cost area limits, which range as high as $729,750 in the most expensive markets of California and portions of the East Coast.

That's potentially important for all buyers — not just first-timers — in those areas because it should open the door to lower interest rates on the big loans they need to purchase even median-priced houses. The current high-cost area limits top out at $625,500.

• Hefty increases and extensions for tax credits to stimulate "qualified energy efficiency improvements" in existing homes. The expanded credits cover improvements to air-conditioning systems, or natural-gas and propane furnaces and water heaters.

• And $2 billion in additional funds for local governments and nonprofit groups to enable them to acquire and renovate foreclosed and vacant dwellings that are depressing property values — and raising crime rates — in urban and suburban neighborhoods hit hard by the housing and mortgage messes.

Kenneth R. Harney: kenharney@earthlink.net