On Tuesday, President Barack Obama signed into law the new $787 billion stimulus bill. While the proposed $15,000 home buyer tax credit died in negotiations between the House and the Senate, a similar $8,000 first-time home buyer tax credit passed which is designed to help revive the ailing real estate market. If you are a retiring Baby Boomer here are some things you should know about how the bill will affect you.
Will the Tax Credit Benefit Baby Boomers?
Unfortunately, for most Boomers, the new tax credit will have little to no effect. The new credit is equivalent to 10 percent of the purchase price of a home capped at $8,000. Unlike the earlier $7,500 home buyer tax credit enacted in 2008, the new measure does not have to be repaid. The final version of the bill is a much narrower version of the original $15,000 tax credit for which many had hoped. The original tax credit introduced by Senator Johnny Isakson from Georgia would have provided as much as $15,000, or 10 percent of the home’s value, whichever is less—to anyone buying a primary residence within a year from the date of enactment. After some last minute modifications, the final bill resulted in a tax-credit to first-time buyers only, leaving a majority of the retiring Baby Boomer population left out of the windfall that may result from the new tax credit.
To clarify, “first-time buyers” as defined by the legislation refers to someone who has not owned a principal residence for three years. Therefore, if you are one of the lucky ones out there who has not owned real estate in the last three years, this could present a great opportunity. However, according to a 2006 National Association of Realtors study, 8 in 10 Baby Boomers currently own a home and 9 in 10 have owned at some point in their lives.
Tax Credit Could Provide Some Benefits
For retiring Baby Boomers who own their home, the $8,000 tax-credit might not mean cash in your pocket right now but it could still provide you some benefit. The idea behind the tax-credit is to encourage people to get out and buy homes. The theory is that as first-time buyers purchase homes in 2009 to take advantage of the tax credit it will have a trickle up effect on the entire housing market. Thus freeing up current homeowners to buy new homes who were otherwise prevented from buying until their home sold. Ideally, the cycle will continue and eventually help lift the real estate market out of the slump. For Baby Boomers who are often leaving larger homes in favor of smaller single level homes, the tax-credit could eventually lead to more buyers interested in their home and make it easier to sell. While it might not mean an immediate reprieve for retirees eager to get on with their retirement living, it’s a start at some relief that will hopefully translate into a more stable real estate market.