The biggest news in the real estate market over the past week is that more than half of the 1.8million homebuyers who claimed their tax credit on their 2009 tax returns may have to pay it back.
Roughly 950,000 of the 1.8million homebuyers who claimed the tax credit in their 2009 tax returns will have to pay it back, according to a report released by the Inspector General for Tax Administration. The homeowners who used the tax credit in their purchase were eligible for one of two different types of credits, and whether or not they have to pay their credit back depends on when they bought their home.
Those buyers who purchased their homes in 2008 will have to return their credit. When the tax credit was originally presented in that year, home buyers were to deduct, dollar for dollar, up to 10% of the home’s purchase price or $7,500, whichever was less. The money came in the form of a no-interest loan that had to be repaid within 15 years.
But when Congress extended the tax credit for 2009 (and into 2010), the credit was made in the form of a refund instead of a loan.
Now this may not seem as groundbreaking news for homebuyers (at least those who read the fine print), but the issue is that the IRS is having trouble separating some of the buyers who purchased in ’08 and ’09.
According to the report, over 4% of the 1.8million tax credit homebuyers have wrong purchase dates recorded by the IRS. Furthermore, and more concerning, nearly 60,000 buyers were listed as purchasing their homes in 2008 (meaning they had to repay the credit) or had no purchase dates at all, rather than their correct 2009 purchase dates, which would free them of the obligation to pay it back.
In other market news of the week, it is revealed that banks are handing out almost twice as many loan modifications and the Obama administration’s Home Affordable Modification Program (HAMP) – be weary of this information, however. Many of these bank modifications do not offer the same benefits as the HAMP program. Banks have merely been waking up that foreclosure isn’t in their own interest (let’s hope the same emphasize is put into short sales!).
Finally, here is an interesting proposal by Keith Gumbinger, a leading mortgage expert, which I am just addressing as the “value gap coverage” plan. This housing market plan is actually to award those good homeowners, the ones who have kept up with mortgage payments even as their mortgage now is most likely worth more than the house they are paying. You can read about it here.
