A refundable first-time homebuyer tax credit of up to $8,000 is the centerpiece of four housing incentives found in the 2009 American Recovery and Reinvestment Act.
The new credit is designed to increase sales in the nation's sagging housing market.
Lawrence Yun, the chief economist for the National Association of Realtors, predicts that homebuyers will buy an additional 300,000 homes in 2009 as a result of the tax credit.
"The impact will likely not be felt for at least three or four months, because it generally takes buyers that long to qualify for a mortgage and search for a home," Yun said.
The new credit improves on a first-time-homebuyer credit that passed in 2008, Yun said. That credit had to be paid back over 15 years, making it more of a loan than a true credit.
"We think this year's tax credit will certainly have a much bigger impact because it is a true tax credit which is also refundable," Yun said. "For instance, if you owe $1,000 in taxes and qualify for the first-time homebuyers tax credit, you will receive a tax refund of $7,000."
Yun said he believes that activity spurred by the new credit will help bring down housing inventory and stabilize prices.
Gibran Nicholas, the chairman of the CMPS Institute (which certifies mortgage bankers and brokers), said that his group was in favor of a more generous tax credit.
He still believes, however, that the credit will have a positive impact on the housing market.
"This tax credit is more of a half-step, but at least it is in the right direction," Nicholas said.
Rules for 2009 first-time-homebuyers tax credit are:
□ Does not have to be repaid unless the home is sold within three years. Applies only to first-time homebuyers, defined as those who have not owned a home within the previous three tax years.
□ Available only for homes bought between Jan. 1 and Dec. 1.
□ Restricted by income; phases out for individuals with an adjusted gross income of $75,000 or above and for married couples with a combined adjusted gross income of $150,000 or above.
□ Tax credit is for up to 10 percent of the purchase price, up to a maximum of $8,000. For example, a buyer of a $150,000 home could get a tax credit of a maximum of $8,000, while a first-time buyer of a $70,000 home would be eligible for a tax credit of $7,000. The credit can be taken on 2008 taxes even when the purchase is made in 2009.
Nicholas especially likes a provision allowing homebuyers to claim their credit immediately.
"The greatest part of this tax credit is that homebuyers can take the credit on their 2008 tax return even when they have purchased the home in 2009," Nicholas said. "This acts as an immediate stimulus for a lot of people."
Homebuyers can take advantage of this filing exception in one of three ways: closing on the home prior to April 15, getting an extension to file taxes later in the year, or filing an amended return.
Some state housing programs are introducing programs that allow homebuyers to access the tax-credit money at settlement.
For example, the Missouri Housing Development Commission's Tax Credit Advance Loan Program allows qualified homebuyers to obtain a no-interest second mortgage worth up to 6 percent of the home purchase or $6,750, whichever is less.
This second mortgage can be applied to down-payment and closing costs, then repaid with the proceeds from the income tax credit.
The National Association of Home Builders has launched a Web site with detailed information about the first-time homebuyers tax credit.
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