GAO_tax_credit.pdf

Preliminary reports indicate that more existing homeowners than expected took advantage of the homebuyer tax credit to help buy a new home this year. About one third of all the 2010 homebuyer tax credits processed to date are going to existing homebuyers, not first-time homebuyers, according to a new report last week from the General Accounting Office.

Some 200,000 existing homeowners have claimed $1.2 billion of the $4.1billion in tax credits claimed to date for purchases between November 7, 2009 and August 30, 2010, according initial claims received by the IRS. About 400,000 first-time buyers claimed the balance, according to the preliminary IRS data through July 3. The GAO noted that these numbers are likely to increase because the IRS is still processing returns and credit can be claimed on tax returns filed during the 2011 filing season.

The existing homeowner credit became available last November. Previous versions of the homebuyer tax credit dating back to 2008 only applied to first-time buyers. The IRS has processed about $20 billion in claims from first-time buyers under previous legislation. However, some $7.2 billion went to buyers who claimed a credit under the first version of the legislation, the Housing and Economic Recovery Act of 2008, which was in effect through June 2009. They are required to repay the credit?which was really an interest-free loan?within two years in equal payments over 15 years.

How many first-time and existing owners were motivated to buy by the new credit and how many were planning a purchase anyway is not known. This spring the National Association of Realtors estimated that 4.4 million Americans will ultimately receive tax credits. That includes 900,000 buyers that NAR projected would not have purchased homes otherwise.

To qualify for the $6500 credit, homeowners selling their homes and buying new ones had to have used the homes being sold or vacated as principal residences for five consecutive years within the last eight.

During the winter and spring, reports circulated that the existing owner credit or “move-up buyer” credit, was too small to motivate owners. The $6,500 credit was thought to mean little to a buyer with enough equity to sell a property and afford another home. Sellers who retain a real estate agent to sell their existing home might typically pay 6 percent of the sales price. For example, a home sold at the national average price of $164,700 at the time, the agent’s commission is $9,882?more than the tax credit.

A survey released last November by Campbell Communications/Inside Mortgage Finance found that the credit gives existing homeowners only half as much incentive to buy a home as first-time buyers. Because of the lesser value of the credit and the higher median price of move-up homes, the credit only accounted for two percent of the cost of an average move-up home as opposed to four percent of a first-time buyer’s starter home, according to the study.

California and Florida are leading the nation in the dollar value of claims from existing homeowners, accounting for more than $779 million, or 64 percent, of the $1.2 billion claimed.

For a copy of the GAO report, clink on the link at the top of the story.