Okay… We got some very good news out of Washington last night. The Senate has given a “voice vote” approving a tax credit worth up to $15,000 to buyers of new or existing homes as part of the stimulus package working it’s way through Congress.
So, what is a “tax credit” and how will it help home buyers? A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $15,000 in taxes and who receives a $15,000 tax credit would not owe a single penny to the IRS. Don’t confuse this with a “tax deduction” which only reduces the amount of income that is taxed. A “tax credit” means huge savings for taxpayers and if passed, will be a major incentive for home buyers.
The home buyer credit was sponsored by Senator Johnny Isakson, Republican of Georgia, who is a former real estate broker and understands what it takes to get hesitant buyers to make a decision to buy. He said it was modeled after a $2,000 homebuyer incentive that helped lead the country out of recession in 1975. here’s a quote from the Senator in the NY Times:
“We do have a history in this country with housing and it goes back to the crash of 1974, which actually in terms of inventory and price declines was comparable to what’s happening now,” Mr. Isakson said at a news conference.
“Within one year of the inception of that tax credit, two-thirds of the available inventory that was on the market was gone. The market moved back to a balanced inventory, values stabilized and things became very healthy. The only reason I know all of that is I was selling houses in 1974, that’s what I was doing to feed my family and make a living.”
Add this huge tax break to low interest rates and low home prices and you get a recipe for a continuing and accelerating recovery. The reduction in inventory will help reinforce the bottom where it’s already being seen and stop the downward price trend in areas that have not already seen the bottom.
This is truly good news for the housing market and for real estate agents and brokers. If you’re thinking about a career in real estate but are still “on the fence” today’s news give you another good reason to get that license as soon as possible.
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About David Goldstein — David Goldstein is an Owner and Founding Partner of Colibri Real Estate, LLC. which operates online education providers Colibri Real Estate, Insurance License Express and License Tutor. Follow him on Twitter.