Do you only have until April 30, 2010 to get into a binding contract on a house, in order to collect your $8,000 “1st time homebuyer credit” or your $6,500 Homebuyer Credit? Lots of discussion going around about that. Some say the credit is never, ever going to go away. I find that hard to believe…unless.
When someone buys a house, they seem to be more focused on getting $8,000 than they are about the mortgage interest and real estate tax annual deduction on their income tax return. What do you think about eliminating the long term benefits of these write offs, in favor of ONLY a one time up front credit? No annual Mortgage Interest Deduction. No annual Real Estate Taxes paid deduction. Just a one time up front cash back for buying a principal residence?
Seems to me the government can recoup all of the money spent on the up front credits and then some, by eliminating the long term write offs in exchange. Of course homes purchased prior to the change would have to be grandfathered and only homes purchased after X date would get the up front vs. the long term tax benefit. Maybe they could give the homebuyer the choice of which they want. A one time election in the year you purchase the house?
Unless the government is taking something away in exchange, I really see no basis for the Homebuyer Credits being extended ad infinitum. Your thoughts?
By the way, I somehow posted this comment under the wrong post. Sorry — Too early and short on coffee.
I took it off for you, Kris. Happy Holidays! Sorry I missed you in San Diego…too busy up here in Seattle to take off. Maybe after the tax credit expires 🙂
Ardell — I read an interesting piece recently that talked about how the government has subsidized/encouraged the very “debt bubble” that is still in the process of deflating. One of the prime examples of this dynamic is of course the home mortgage deduction. Perhaps we should encourage saving rather than debt, in which case we can do away with both the interest deduction AND the credit. Of course, there are many people with a vested interest in the system as it exists today so ths change is very unlikely.
Craig,
I’m going way back to my Investment Officer days here, but I recall that the ONLY means of encouraging savings, is a decent return for doing so.
The savings problem has nothing to do with home buying and selling. The savings problem is caused by:
1) No usury cap rate on credit cards
2) Low return on savings.
If you are paying 22% interest on your credit card and getting 2% interest on short term savings…duh…have to put it on the credit card balance.
As to the government ecouraging a “debt bubble”, not so. The government focusing on new rules regarding credit card debt is appropriate, and MUCH more appropriate than discouraging home ownership.
The new measures to induce home buying are NOT supporting a new “debt bubble”, because they first fixed the guidelines for mortgage borrowings. Soft landing of problem loans from bad underwriting guidelines…yes. Stretching out the impact of the fallout from the bad stuff…yes. But creating bad debt? No.
Managing the DTI, Debt To Income ratios, is well in place during the period of home buying incentives. They are creating better debt, which will help us work through the problems of the bad debt. Most all mortgage lending (except hard money loans) during the home buyer credit, were based on sound underwriting principles, and NOT the methods used that created the debt bubble.
In all the rent vs. buy scenarios, even from very savvy buyers, rarely will they compare the cost of renting to the cost of buying, by deducting the write off of interest and taxes advantage. RARELY does a buyer think about, or even want to hear, what their payment is “after tax benefit” as to the monthly mortgage payment. This tells me that the government is losing money hand over fist on a program that no longer incentivizes home buying, and is just a big waste of money.
Perhaps the government is testing what happens with an up front credit? Perhaps seeing that it works well will give them the means to move to the next step of up front OR long term tax benefit? I generally give smart people the credit of knowing what they are doing.
Why not give the taxpayer the choice? Up front credit OR deduct interest and re taxes? Then the government won’t be “blamed” for “taking something away”.
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