Last night the Senate cleared legislation regarding the extension of the first time homebuyer credit to reach the President this week, and it is virtually certain that President Obama will sign the legislative package which contains an expansion of unemployment benefits as well as the tax changes.

 The homebuyer tax credit would be extended through April 30, 2010 and a new provision allows for move-up buyers to be eligible for a credit as well.  The $8,000 maximum first-time credit will continue and couples with income up to $225,000 will be eligible, nearly $55,000 above existing guidelines. A new $6,500 maximum credit would also be available to move-up homeowners who have lived in their current residence for five of the prior eight years.

In response to previous abuse of the tax credit, an investigation by the Treasury Department found nearly 600 children, aged four and up- had received $627,000 in tax credits. The Internal Revenue Service will have greater oversight to eliminate fraud.
The legislation also contains a provision supported by the National Association of Home Builders to help larger companies with net operating losses this year or in 2008, allowing companies to carry back losses to five years for either 2008-2009, and the income cap has been removed. Presently, Companies can carry back losses for two years, and income caps limited the credit to smaller companies, so this will be a boom for larger cash strapped builders.

This Week’s Real Estate Insight:

There was about a 12 month supply of single family homes on the market nationally when the first time homebuyer tax credit was enacted, now that’s down to about an 8 month supply.   Hopefully, the extension of the credit will help to work through the inventory to a more balanced market that will be able to sustain its own recovery.

The American Recovery and Reinvestment Act of 2009’s tax related provisions are well documented successes. By some estimates, one-third of recent home sales can be attributed to the $8000 tax credit for first-time homebuyers, and the cash for clunkers was also very popular.  If you plan on taking advantage of the credit, you should have an offer in by the end of this week.  There are 11 weeks left for the credit, and according to The National Association of Realtors, first-time homebuyers take an average of 12 weeks to search for a home.

You may not realize that The Act also extended many consumer tax incentives for energy efficient building products originally introduced in 2005. Qualifying products purchased between January 1, 2009 and December 31, 2010 are eligible for a tax credit equal to 30 % of the product cost. Installation is not included so be sure to obtain an itemized invoice from your retailer or installer.

Here is a summary of some of the energy related tax credits available:

• Home Energy Efficiency Improvement Tax Credits
  Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in existing homes can receive a tax credit for 30% of the cost, up to $1,500, for improvements “placed in service” starting January 1, 2009, through December 31, 2010.
• Residential Renewable Energy Tax Credits
  Consumers who install solar energy systems (including solar water heating and solar electric systems), small wind systems, geothermal heat pumps, and residential fuel cell and microturbine systems can receive a 30% tax credit for systems placed in service before December 31, 2016; the previous tax credit cap no longer applies.
• Automobile Tax Credits
  Hybrid Gas-Electric and Alternative Fuel Vehicles
  Individuals and businesses who buy or lease a new hybrid gas-electric car or truck are eligible for an income tax credit for vehicles “placed in service” starting January 1, 2006, and purchased on or before December 31, 2010. The amount of the credit depends on the fuel economy, the weight of the vehicle, and whether the tax credit has been or is being phased out once that company has sold 60,000 eligible vehicles. Hybrid vehicles that use less gasoline than the average vehicle of similar weight and that meet an emissions standard qualify for the credit.

This Week’s Real Estate Insight:

The maximum amount of homeowner credit for all improvements combined (including roofing, insulation, HVAC, and water heaters) is $1,500 during 2009 and 2010. The IRS will determine final tax credit amounts. Check out ENERGYSTAR.gov and IRS.gov for guidelines.