Congress's throwaway on 'first-time' home buyers

A new house under construction in Leesburg. The first-time-home-buyer tax credit has been expanded to more people and extended through April. It now offers $6,500 to some homeowners changing primary residences.
A new house under construction in Leesburg. The first-time-home-buyer tax credit has been expanded to more people and extended through April. It now offers $6,500 to some homeowners changing primary residences. (Andrew Harrer/bloomberg News)
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By Michelle Singletary
Thursday, November 12, 2009

It's official -- we have a new tax break for people who don't need it, using money our government doesn't have.

In an effort to stimulate the economy, the people who wouldn't know a balanced budget if you smacked them on the head with it have not only extended the excessive first-time homeowner's credit of $8,000, but also expanded it to include a credit for current, longtime homeowners.

It just pains me to spell out the details of this latest windfall. But here I am, letting you know about the new law -- the Worker, Homeownership, and Business Assistance Act of 2009 -- which was signed by President Obama on Nov. 6.

Let's start with the $8,000 first-time-home-buyer credit, which was slated to expire at the end of November. If you're eligible, you must buy, or enter into a binding contract to buy, a principal residence on or before April 30. You have to close on the home by June 30.

Here's where things get wild. Congress stretched the definition of what it means to be a first-time home buyer to include a second group of people. I guess the members live in a fantasy world like little Max does in "Where the Wild Things Are," where first doesn't mean first.

For the $8,000 credit, you are still considered a first-time home buyer if you haven't owned a home for the previous three years. The new law has also created another category of so-called first-time home buyers. A credit of up to $6,500 ($3,250 for a married individual filing separately) is available to current homeowners buying a replacement principal residence.

Seriously, this is what the law says about the folks eligible for the new $6,500 credit: "In the case of an individual (and, if married, such individual's spouse) who has owned and used the same residence as such individual's principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer." At least Congress could have been honest and not treated us like we're fools. If it wanted to give money to people who already owned homes, then just say so. Don't insult us.

In the case of both credits, the income thresholds were increased. Previously, there was a phase-out between $75,000 and $95,000 yearly for individual filers and $150,000 to $170,000 for joint filers.

For homes bought on or after Nov. 7, the credit phases out for individual taxpayers with modified adjusted gross income between $125,000 and $145,000, or between $225,000 and $245,000 for joint filers. The old limits still apply to purchases on or before Nov. 6.

There is also a limit on how expensive the home can be. You don't qualify for the credit if the purchase price of the principal residence exceeds $800,000. There is a new age restriction. You have to be 18 (or your spouse must be at least 18) as of the date of closing for purchases on or after Nov. 7.

To curb fraud, taxpayers must now attach a copy of the settlement agreement to the tax return.

Still, in the law is a "clawback" provision: The credit must be repaid if, within three years of purchase, the home ceases to be your principal residence. For example, if you claim the credit based on a qualifying purchase on Sept. 1, you must repay the full credit if you sell the home or convert it to business or rental use at any time before Sept. 1, 2012, the IRS advises.

To claim the credit, you must file IRS Form 5405 with your original or amended tax return. For qualifying home purchases that close in 2010, you have the option of claiming the credit on your 2010 return or when you file your 2009 return by April 15.

There's no arguing that this "first time" home-buyer credit is valuable. It's fully refundable, meaning the money is paid to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed. If you're eligible for the credit, I can't fault you for claiming it. But too bad we can't send members of Congress to bed without their supper for this financial mischief.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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