Fifteen Thousand Dollars

Who would pay $15k in taxes in one year? I have three kids and a mortgage and I pay zero taxes. In fact, the Fed will be giving me money in the form of the “additional child tax credit.”
I hope you can spread it out over a number of years.

Thanks Ardell,

And yes Mark, the credit specifically outlines that you receive the full credit you are eligible for regardless of taxes due and it is payable back over time (in the current $7500 case its $500/year over 15 years). Regardless, lets hope the payback is waived and it is indeed a true credit.

The misinformation in this comment stream is astonishing. Why don’t “professionals” wait until they have hard info before posting?

Just a thought.

Ardell, comments like ‘the talk is you get the money’ from yourself and a similar one from Jim Vanguard, both in response to Mark, are the ones that create confusion. The amendment was linked here. If one doesn’t know how to interpret the language of an amendment, one should ask a lawyer or prof before weighing in IMHO.

Jim, Agree w/calculated risk. Important to stimulate the economy right now. This tax credit will not impact our decision to buy…we have our taxes figured out. A buyer would have to be innumerate to let this solely impact a financial decision, as would a seller. IMHO, a buyer shouldn’t be so close to the edge that this kind of tax advantaging makes a big difference.

What would be more important, and a better use of the money IMHO is if there was a 30 yr fixed at 4% for everybody.

The biggest issue in this area is the pricing. The askings are still bubbled up whether the house has been owned for twenty years or two. This has to account for why there are so many properties on the market. And our family has seen no convincing evidence that if we buy now the value will hold. It will drop. No way it can’t, when it’s happening in the rest of the country. We’re looking for a good, fair deal, not padding the pockets of somebody who still believes it’s 2006.

And like other buyers we’re willing to wait b/c we save money renting.

Absolutely agreeing that this is all speculation and acknowledging counting on the government before its in writing is a very poor decision. . . . its still fun to speculate.

It seems to me that this credit could have a large impact on house prices. I’ve read a few posts (here and elsewhere) that insinuate that a $15,000 (or 10%) tax credit would increase the value of the house by the same amount. If your selling a house in a certain range (and thus guaranteeing that buyers will receive, over 2 years, the full $15,000 (because of their tax load) then you are potentially increasing the value of the house by much more then $15,000. We don’t, in this country, buy houses in cash. . we buy them with mortgages which means that we use leverage. So with 20% down, that $15,000 really equates to $75,000. I’m not saying that folks will pay that much more, but they could although they would be paying higher mortgage payments, but hey mortgage payments are low and with the probability of inflation (with these new tax breaks, new TARP and new stimulus plan, we will have to print a LOT of money) then having a locked in rate of sub 5% is going to be a phenomenal deal. CalculatedRisk and others are discussing the huge cost to the government in terms of lost taxes. Those rough calculations do not appear to take into account that the government is losing a lot of tax on plunging house values ($3 Trillion in house value was lost last year) plus the plunging house values are driving foreclosures which are devaluing all the asset backed securities (ABS) that the government now owns thanks to TARP. It might be expensive but this stuff is a win-win in some ways. . . the biggest downside that I can see is that this (like so many “economy boosting” incentives) really targets those who are doing pretty well since it only really kicks in if you are paying a lot of tax.

We are simply spending our kids money to help the people who caused this mess. No one should get to stay in their house if they lied about their income to get the loan – nor should the bank that gave the loan be assisted over it – finally, the broker who allowed it should be prosecuted.

Too many people lied, cheated, and stole and now we’re rewarding them. Let house prices sink and finally the “affordable housing problem” will be solved.

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No one made people buy overpriced houses. If you paid for a house that had risen in value around here by 150% in less than two years, you were obviously taking a huge gamble. It doesn’t take a college course in macroeconomics to know that the kind of prices were were seeing were unsustainable. I don’t think anyone predicted how hard things would fall, but there has been precedent in this country before in previous economic cycles.
Buying a house is not like buying a new coat, it is the biggest investment that you will probably ever make, and frankly a lot of people don’t do the necessary research before they purchase. If you have read Jim’s blog for a while he counsels all of his readers and buyers to perform due diligence. Unfortunately, not all realtors have his philosophy, and for too long, people in this country did not take buying a property seriously enough. I hate to see anyone face hard financial times, but to keep throwing good money after bad at this problem will not straighten out the cycle to its logical conclusion.

These last points are good ones and I would have to agree. Any investment comes with inherent risk and for some reason folks stopped thinking of houses as having any risk. I personally purchased a house three years ago but made a number of decisions (location, condition, price, ability to rent) which allowed for downside protection. It is also certainly true that there is a lot of pressure to bail out builders and homeowners who are under-water due to this lack of risk assessment. From this perspective alone it seems inconceivable that tax-payers should be on the hook for individual’s (and companies’) poor decisions.

I agree with jmcnamera and downtownenvy that we need and can survive a house cleaning. The question becomes, how much pain is the country (government) willing to absorb? Here in Charlottesville we aren’t going to see half of how bad its going to get in many places in the country. For better or for worse our politicians respond to the immediate needs of the people and much of the bailout plan is focused on reducing this immediate pain through mortgage adjustments and plans to increase house prices.

I would continue to argue that as unsavory as it is to provide tax relief (such as the $15,000 credit) to help prop up house prices. It has the potential of being a win-win in as so much as it has huge upside for a consumer who is able to take advantage and also upside for the economy and the government (who now has a real $$ interest in banks which was purchased through our tax dollars). I don’t think that this is merely sticking our head in the sand (although jmcnamera will disagree, possibly correctly) as there is a lot of pressure to increase restrictions on loans etc and it should be possible to avoid the mistakes of the past (although we rarely manage that I suppose). Would it not be okay if the prices of houses dipped to a reasonable resting spot and then resumed a more slow and normal growth?

Why is it especially paid for by those who bought homes they could afford? I would assert that in a place like Charlottesville the home prices are going to adjust to their normal level with or without the government intervention. Ideally help would be focused on keeping people in their homes and paying the mortgages that they entered . . . one way to make that happen is to slow the decline in house prices.

What is really frustrating, as someone who bought a home they could afford, is how the price of my house is being negatively effected by foreclosures and other stressed sales of houses because of the amount of people who bought houses they could not afford. Aren’t we, “good buyers”, also negatively affected on that end?

Well, the tax credit has been substantially cut back in the final bill. It now is for a maximum of 8000, good only for houses purchased this year, and phased out for individuals w/incomes above 75k/couples filing jointly above 150k.

It’s pretty much spitting into the wind, at a large cost to the U.S. Treasury, and, ultimately, all of us. The effect, in my view, will be to delay for a time the inevitable — prices in C’ville have to fall, in my view by at least another 20%. Why do I say this? B/c this area is now shedding jobs — I predict unemployment in this area will tick up by 2-3 percent over the next 18 mos., with an accompanying rise in foreclosures. UVA is frozen, and soon the freeze will turn into dis-employment by attrition. There are no other sources of employment to pick up the slack, at least not in the short and medium term. Retirement purchasers have ground nearly to a halt because the would-be C’villians can’t sell their houses. And yet in the face of all this, and despite a huge overhang of inventory, many C’ville sellers are listing houses at absurd bubble prices. Time for people to face facts.

One additional point — I’ve been following the rental market and rents in C’ville are under pressure and are beginning to drop. That means that the purchase price/rental ratio will get further out of whack unless house prices fall more.