- Days left

Why the Home Buyer Tax Credit should be allowed to expire

housingIt appears Uncle Sam will keep propping up the still shaky real estate market for months to come. The Senate last night voted to extend the $8,000 first-time home buyers tax credit, and the House followed suit today. The president is expected to soon sign it into law.

But is the bill good for real estate? Not at all. What better way to fix a bubble caused by way too much home ownership than to encourage more home ownership?

Extending the home buyer tax credit is a bad idea because the real estate market doesn't need it. The panic phase of the housing crisis is essentially over. Americans know full well that house prices are no longer in free fall, but still have a ways to go before resembling anything close to a recovery.

Real estate experts have long argued that slumping prices and dwindling sales are a natural and necessary part of the real estate cycle. Extending the tax credit will only help lower and middle class Americans buy homes they can't afford, which will likely exacerbate the housing problem and may even trigger another mini-bubble in some markets.

In fact, a handful of local and state housing agencies are already providing second mortgages to buyers who don't have enough money for down payments so that they might turn the tax credit into cash. Down-payment assistance helped fuel the housing crisis in the first place because it helped people buy homes they couldn't afford.

I've already written in this column about the bidding wars now underway in some places for low and mid-priced homes as the tax deadline loomed. Extending a tax break to first-time buyers will only inflate these already somewhat inflated numbers.

The new bill goes beyond giving a leg up to first-timers who place homes under contract by the end of next April. Americans who have lived in their current house for five years and want to buy a new house will be also be able to get in on the action by being eligible for a $6,500 tax credit.

This isn't needed. In many markets prices have fallen so far that houses are actually affordable again in a way they haven't been in years. That's a reason enough to buy a home even without a government handout.

Let's face it, fear and a healthy dose of pandering is why this home buyer tax credit persists. Months of dire warnings from the National Association of Realtors and other formidable real estate lobby groups have spooked not only skittish lawmakers who don't want to appear tone deaf on housing woes.

It's also startled home buyers (aka voters), who now think the government should come to the rescue every time housing numbers tick downward. (For the record, home sales figures have been on an upward trend in many markets for months.)

The housing crisis was triggered, in part, by bloated sale prices, greedy speculators, and overzealous Americans wanting to "get in on the real estate action." Extending the tax credit or any other economic benefit will only serve to put us right back where we started by helping Americans rush to buy when they should be waiting, saving, and renting.

Finally, it's also important to remember another crucial point; Uncle Sam is broke. America is currently carrying record deficits and the bailout-happy Congress will only worsen the problem.

By December 1, the original end to the tax credit deadline, the government will have spent some $8.6 billion on house-buyer payments. Estimates for the proposed extension start at close to $12 billion. The lesson? Tax perks for house buyers don't come from the government. They ultimately come from taxpayers.

Troy McMullen writes the weekly INside Real Estate column for WalletPop. He's a former real estate reporter for the Wall Street Journal and Financial Times.

Increase your money and finance knowledge from home

Building Credit from Scratch

Start building credit...now.

View Course »

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

TurboTax Articles

What Are the Tax Penalties for Smokers?

Starting in 2014, the Individual Shared Responsibility provision of the Affordable Care Act made you responsible for having minimum essential coverage, or MEC, in health insurance. Otherwise, you need to be eligible for a health care exemption, or you could pay a penalty when filing your income tax return. This requirement for minimum essential coverage applies to smokers and nonsmokers alike. If you're not covered by an employer's health plan and are a smoker, you can go to the health care marketplace to find MEC. If you're still unable to comply, you may have a penalty applied.

5 Steps to Navigate the Healthcare Marketplaces

To navigate the Health Insurance Marketplace, you have to know what you want from a health plan. Have your previous plan handy to make comparisons, as well as household and income information. If this is your first health plan, be aware of your needs and know your tax situation. Eligibility depends on the size of your family and combined income from all sources.

What Is Form 8941: Credit for Small Employer Health Insurance Premiums

Small business owners who subsidize the cost of employee health insurance premiums may be able to get some of that money back by claiming the credit for small employer health insurance premiums on their taxes. Some of the eligibility requirements, however, limit the number of people a business can employ and the average annual wages they earn. Qualifying as a small employer can reduce your tax bill by the amount of the credit you report on Form 8941.

What Is Form 8911: Alternative Fuel Vehicle Refueling Property Credit

In light of rising gasoline prices and environmental concerns, consumers have become more receptive to buying cars and trucks that run on types of fuel other than gasoline. The U.S. government introduced a tax incentive to encourage the installation of facilities to store or dispense alternative fuels in 1992. That incentive has evolved into a tax credit that also applies to equipment that recharges electric cars. If you equipped your home or business to accommodate alternative fuel vehicles, you may be able to use Form 8911: Alternative Fuel Vehicle Refueling Property Credit to reduce your federal tax obligation.

What Is Form 8885: Health Coverage Tax Credit

The health coverage tax credit is a program in place for tax years from 2002 to 2013 to help eligible individuals and families by paying a portion of premiums for qualified health insurance programs. Since the legislation authorizing the credit expired in January 2014, tax returns filed in 2014 for the 2013 tax year represent the last time eligible taxpayers can claim the credit.

Add a Comment

*0 / 3000 Character Maximum