Nearly 600,000 Home Buyers Claim Tax Credit So Far
By Lew Sichelman
John and Romy Kohler are first-time home owners, thanks in large part to the $8,000 federal tax credit enacted by Congress as part of the American Recovery and Reinvestment Act.
The credit "was extremely instrumental in us getting our home," says John, who is in management at Chick-fil-A in Bloomington, Ind., where Romy has enrolled in law school at Indiana University. "We couldn't have done it without that."
James and Jennifer Pelton of Lakeland, Fla., and Leslie and Enrique Talavera of Chula Vista, Calif., wouldn't have been able to buy their first homes without the credit, either. They, too, are among the tens of thousands of young families who are taking advantage of the government's latest effort to jump start the economy to become home owners.
The federal credit is available to first-timers who purchase a principal residence this year and close prior to Dec. 1. The credit is equal to 10% of the purchase price, up to a maximum of $8,000, subject to certain income limitations. And as long as you occupy the property as your main home for three years, it need not be paid back.
Consumers can find comprehensive information on the tax credit at www.federalhousingtaxcredit.com.
The Kohlers have been renters since they were married three years ago, and they were "looking to rent again" when they moved to Bloomington so Romy could attend IU. But when they learned that Congress had bumped the tax credit from $7,500 to $8,000 and dropped the requirement that it be paid back so long as they occupy the home as their primary residence for 36 months, they literally jumped at the opportunity.
The couple was visiting the Highlands, a Beazer Homes community, when they learned of the new and improved credit, and they ended up signing a contract to buy a $165,000 house that same day. "It's a big house for us," says John of the four-bedroom, 2-1/2-bath home. "But it will give us room to grow our family. It's a dream come true. We are really, really excited."
The Kohlers put up a $6,000 downpayment and paid about $2,000 in closing costs. "But basically we'll get all that back in a few weeks when we receive our tax refund," John points out, "so we'll just about break even."
The Peltons in Florida aren't first-time buyers in the true sense of the term. But they still qualify under the tax credit rules, which define first-timers as anyone who hasn't owned a principal residence for three years prior to their closing date, the day they actually take title to their new home.
The Peltons previously owned a manufactured house that was damaged not once but twice when hurricanes tore through Central Florida several years ago. Each time a storm hit, James not only had to pay to repair their home, he also lost valuable work time. "I was out of work for two weeks after one hurricane, and when the next one came, I was out of work again. I lost a lot of money."
He "tried everything to catch up," he says. But eventually, they had to give the place up.
Now, though, they are owners of a $149,900, four-bedroom home at the Enclave, a Highland Homes community. And they are going to use the money they get back from Uncle Sam when they file their 2009 tax return as a cushion so they will never again fall behind on their mortgage payments.
James, who works two jobs to support his family of four — during the day, he works in a food warehouse, and at night, he delivers the Lakeland Ledger — is certain the couple would have purchased another house eventually, but probably not for another five years or so. "We don't have that kind of money lying around," he says.
But thanks to the tax credit, the Peltons were able to buy now. "The $8,000 tax credit was a big incentive," James says. "It gives us a fresh start."
In Southern California, meanwhile, the Talaveras have just moved into their four-bedroom, 2-1/2-bath house at the Summit at Eastlake.
There were other factors that went into their decision to buy the $350,000 house by Cornerstone Communities. Prices are more affordable then they've been in years and there are lots of models to choose from. But the tax credit was paramount, especially since California is kicking in a tax credit of its own for up to an extra $10,000.
Unlike the federal tax credit, which is for first-timers who buy either a new or existing house, the California credit — 5% of the purchase price, up to a maximum of $10,000 — is targeted just to buyers of newly built homes.
"We are the classic people the government is trying to reach," says Leslie, who works in the business office at a local hospital while husband John is an E-6 in the Navy. "We were looking, though not very seriously because we thought the market might drop some more. But when we heard about the tax credit, we decided to take advantage of it."
Now, the family of four is living in a brand new home, a home "we never thought we'd be able to get."
The California tax credit is going fast. The state has set aside $100 million for the credit, which is enough to cover 10,000 buyers at the maximum credit, and nearly 4,000 buyers have already applied, according to the state. On the federal level, where there is no limit on the total number of credits, nearly 600,000 have already claimed the first-time buyer credit.
As of March 6, nearly 568,000 had claimed a first-time home buyer credit, according to the Treasury Inspector General for Tax Administration, which audits the Internal Revenue Service.
California builder Matt Towery of Towery Homes can attest to the power of the combined credits. He logged just one sale prior to Thanksgiving, but since then, he's notched 48 at his four communities in the Bakersfield area about 90 miles north of Los Angeles.
"The California credit is the one that really clicked in for us," says Towery. "When that hit, our traffic went from 15 groups a weekend to about 50. Cars were parked in the vacant lots across from our models. It was just stunning. We haven't seen that for years."
The young builder, who has been in construction all his life but didn't go out on his own until 2002, says the tax credits are "creating a sense of urgency" among would-be buyers who have been sitting on the fence. "Now they are worried we won't be able to finish their homes on time" so they can claim them.
Lew Sichelman is a nationally syndicated columnist who has been covering the housing market for more than 35 years.