Second Chance for First-Time Buyers
Tax Shelter: real estate agent Atul Garg can give you up to 8,000 reasons you should buy now.
Second Chance for First-Time Buyers: Want $8,000 back with the purchase of your first house? Pay attention!
Real estate agents across the country became temporary policy wonks last week.
But unlike other C-SPAN junkies, this group wasn’t fixated on whether the House of Representatives would scrounge up enough votes to pass health care reform. Instead, they were eyeing a provision in the U.S. tax code whose preservation they see as crucial to the battered housing market’s recovery.
The so-called “first-time homebuyer credit” is the real estate world’s “Cash for Clunkers”—a program that immediately recharged an industry, albeit while critics howled about its cost and said its impact would not last. According to many, the tax credit has energized middle- and low-income first-time buyers, giving them a financial incentive to start grabbing up some of the nation’s millions of foreclosed properties—otherwise sitting empty, losing value, and devaluing other homes.
The program, approved in February as part of President Obama’s stimulus bill, offered up to $8,000 to buyers. Originally set to expire Nov. 30—fueling a rush among would-be purchasers to find a house and settle, posthaste—the tax credit was extended by Congress, in modified form, last week. Buyers can now take advantage of it as long as they sign purchase contracts before April 30 and close by June 30 of next year.
“I ask people, ‘Do you know about the $8,000 tax credit?’ It surprises me that people don’t hear about it,” says Maceo Thomas, who works with Long & Foster on Capitol Hill. “A lot of people’s antennas just aren’t up for that,” he says.
In D.C., 1,329 people had filed for the credit as of Aug. 22, including those who took advantage of a $7,500 break passed in 2008, according to Jim Dupree, a spokesperson for the Internal Revenue Service. (In Maryland and Virginia, 23,679 and 40,527 people filed for it, respectively.) The actual numbers are likely much higher, as the figures do not include those who plan to file for the credit on their 2009 tax return but haven’t done so yet.
For those who didn’t take advantage of the credit on the first go-round, a few area real estate agents can explain what’s changed and how you can secure the break now:
• If at first you didn’t succeed—because you were too rich, boo-hoo—try again! The just-passed credit welcomes a whole new income bracket to the closing table. The old version shut out couples earning more than $150,000; individuals making above $75,000 couldn’t qualify for the full credit, either (there is a sliding scale). In the Washington area, plenty of people fell under this cap, including funeral directors (average annual income: $68,740), clergy ($45,750), social workers ($52,370), and high school teachers ($63,410), according to the Labor Department’s statistics. The new version is open to married couples making $225,000, collectively, and singles making $125,000, allowing financial managers (average annual salary: $119,740) and others to slide right in. It’s possible this new tax credit will have a greater effect on some of D.C.’s pricier, trendy neighborhoods, where well-to-do young people tend to buy their first homes. Since the first homebuyer credit passed, Thomas has worked with 11 first-time homebuyers, eight in D.C. The bulk of his clients are “nonprofit folks, government employees,” looking for houses priced at $250,000 and below. They purchased toward the back end of Capitol Hill by RFK, Fairlawn, the H Street area, Anacostia, and elsewhere east of the river. “High-end condos—I haven’t had any of those sales,” he says. On the other hand, agent Stanton Schnepp of Coldwell Banker Dupont works primarily with buyers looking at Logan Circle, Capitol Hill, and Dupont Circle. He didn’t see too many first-time homebuyers in the last few months—just two, he reports, and neither qualified for the tax credit: They earned too much. The new version of the credit won’t apply to million-dollar penthouses, however. It’s only applicable on properties costing up to $800,000 (the last version of the credit had no limitation.)
• Don’t count on the full $8,000. “The danger in discussing this credit is [thinking], ‘Oh yeah, you’ll get $8,000.’ If you look closely, it’s up to $8,000,” says Atul Garg, a real estate agent from Coldwell Banker Dupont. He doesn’t play tax attorney when it comes to the homebuyer credit—if clients want to know exactly how much money they’re going to get, he tells them to talk to their lender. Scott Tucker, a senior loan officer with Coldwell Banker Residential Brokerage firm, says that, during the first round, an individual buyer’s credit was reduced $2,000 for every $5,000 over the tax credit salary limitations. With the initial tax credit, for example, people earning $75,000 or less could get the full $8,000 credit. Someone making $80,000 would get a $6,000 credit. For those not making a salary that ends neatly in a zero or a five, there is a formula, says Tucker: “Take the income, subtract eligible income, and then there’s a factor that you multiply it by and that’s what you get,” he says. Best to call your lender.
This article will appear in this week's edition of the Washington City Paper.
CORRECTION: An earlier version of this column switched the first and last name of real estate agent Maceo Thomas.
Image by Darrow Montgomery