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Budgeting For the Homebuyer Tax Credit

The Home Buyer Tax Credit was introduced in 2009 to first-time home buyers. This type of buyer was defined as one who has not owned a residence within three years. All first-time transactions between January 1 and December 31, 2009 qualified for this credit. The owner would receive a credit equal to 10 percent of the purchase price up to $8,000 and it did not have to be repaid unless the home is sold or no longer a primary residence within three years of the purchase. As of November 2009, this credit was extended to April 30, 2010 and expanded. In addition to the first-time home buyer, existing homeowners can now receive a credit up to $6,500. The income limits are $125,000 for a single tax payer and $225,000 for married couples filing jointly. With this credit, it is interesting to look at who this affected in terms of budgeting. Three groups come to mind – the government, home buyers, and real estate companies.

When considering the tax credit, the government would have had to budget while being in a deep deficit. This credit is similar to the Cash for Clunkers program in that the government gave American consumers a tax rebate or credit towards a new vehicle purchase and handing in their non fuel efficient vehicles in 2009. Government spending was massive within 2009, and we are still in this deficit. This was not “budgeted” well, but there is hope that it will stimulate our economy and help pull us out of the recession.

Another group to consider is home buyers, first-time and existing homeowners. Many first-time home buyers want to take advantage of this credit. If the money was saved and you were ready to buy, the timing could not have been more perfect to purchase your first home and benefit from this tax credit. But, for some, there may not have been enough time to plan and budget to take on a mortgage payment during the timeline provided. For existing homeowners, the extension and expansion of the credit made taking advantage of this a little more feasible – they are already used to having a mortgage payment. Many homeowners refinanced in 2009 due to the low interest rates. The extra $6,500 could have been a decision factor when choosing between refinancing their current home and buying a new one. Basically, an existing homeowner had to decide whether the $6,500 tax credit was worth a new home a mortgage.

If there was a group or industry the Home Buyer Tax Credit helped the most (so far), it is the real estate companies and market. Most previously successful companies were at a severe low in 2008 and 2009. This was caused by the housing bubble bursting with no recovery for many months. There was no room for any of these companies to budget for anything; many were cutting back on employees, company events, and some even closing. This tax credit gave the real estate industry some hope that things may start to turn around, business would increase, and the market would improve. This has already begun to happen. There are home buyers again, and the houses are moving off the market. The tax credit combined with low interest rates is a recipe for change, and in a good way.

After looking quickly into how these groups budgeted, or prepared, for the Home Buyer Tax Credit, the idea that this has been good for our economy is a valid one. The government may not have the funds needed to follow through with the credits in the long run, but is helping the economy now, which is what we need. This credit, along with Cash for Clunkers, is bringing the American consumer out and putting money back into our economy. The most important of these groups is the home buyer; they are the ones who have to make the decision to purchase a new home so this program will work. As mentioned before, if it is possible to take that huge step, first-time home buyers are going to do it. There has never been more of an incentive to make that happen until now. This credit really pushed those waiting to buy out into the real estate market with a force. Working for a real estate company, I have seen this first hand. Another aspect I see is how our company is responding to this tax credit. In 2008 and 2009, our company cut back on a number of company events and laid off or reduced hours of employees almost every quarter. With this boost in buyers, we are slowly recovering and headed back to a sense of normalcy for the first time in a while.

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