The Stimulus Package's More Buyer-Friendly Tax Credit

Now that Congress has fixed a crucial flaw in last year's home-purchase tax credit, who will be able to make use of the new version? And what about timing: How long do buyers have to locate a house and close the deal?

These are just two of the flurry of questions surrounding the $8,000 housing credit for 2009 authorized by Congress's sprawling $787 billion stimulus plan. So here's a quick rundown on the credit and several other real-estate-related measures in the package.

Although 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 for the 2009 version lifted the requirement that it be paid back.

There's still widespread misunderstanding on the issue, but qualified purchasers who closed in 2008 will not benefit from the 2009 amendments. They're stuck with the old model, and will have to pay back the credit -- more precisely 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, no-repayment 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 they have never owned a house before, or they haven't owned or co-owned one during the three years preceding the date they close on their 2009 purchase.

Carefully planning the timing of your closing could be worth thousands of dollars to you. Say you once owned a house but sold it on March 25, 2006. If you close on a house in 2009 but 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 with 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 couples filing jointly. 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 home buyers in many parts of the country. 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 wide variety of forms, including "houseboats, housetrailers, cooperative apartments, condominiums," among others, according to IRS rules.

Congressional sponsors of the revised tax credit program offered no projections of how many home sales are likely to be stimulated this year by the no-repayment 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" -- spending 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: