The Foreclosure Prevention Act recently passed by Congress (and expected to be signed soon by the President) does not appear to offer much benefit to Marin home buyers and Marin homeowners.
Among the highlights of the Act is the First-Time Home Buyer Tax Credit. This “credit†is essentially an interest-free loan to first-time buyers (buyers with no ownership in a principal residence during a 3 year period prior to purchasing a new home) up to $7,500.
The limitation (certain to impact many Marin home buyers) is that the credit begins to phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a married filing joint return). The “credit†received by the taxpayer is then generally required to be repaid over the following 15 years as an interest free loan.
Reduced Home Sale Exclusion Allowance
Among the negatives of the Act (also referred to as revenue raisers) is the reduced home sale exclusion for periods that a home was not used as a principal residence. This provision would limit the availability of the gain exclusion of up to $250,000 ($500,000 for married filing joint return) for homes used as vacation homes or rental properties after January 1, 2009. Under the current law, taxpayers can convert their vacation home or rental property to a principal residence and use the gain exclusion law if they meet the 2 of 5 year use and ownership requirements (one caveat for gain from former rental properties is that previously taken depreciation is generally recaptured and subject to a federal tax of up to 25%).
While the new Act may not benefit Marin homeowners, hopefully it will go toward improving slumping home sales in other parts of the country.