The first-time homebuyer tax credit was a major incentive that the government, in collaboration with the real estate industry, initiated to stimulate the economy. It’s understood that the tax incentive worked in the short-term, encouraging more home purchases for a period of time that continued to be expanded by Congress. Nevertheless, the housing market continues to be in a slump. The index of home prices was down again in the most recent reports.
What happened to taxpayers who applied to receive the tax credit? For the most part, filers who included all the required forms received the credit in about six weeks. Anyone who didn’t file the paperwork properly found their applications under review, and the IRS quickly became overwhelmed with the requests. As a result, even taxpayers who filed the proper paperwork and are rightfully owed the credit were faced with delays and problems.
There are still taxpayers to whom the government legitimately owes the credit who haven’t received a check. The government changed the homebuyer credit several times. The benefit morphed from a maximum $7,500 credit in the form of a loan that must be paid back to the government over time, to a maximum $8,000 credit available to first-time homebuyers only that would not need to be paid back, to a credit available also to long-time homeowners rather than just first-time buyers. In addition to the changing form of the credit, the qualifying home purchasing and closing dates changed frequently, as well. Tax preparation experts struggled to keep up with the changing laws.
Making the situation worse, along the way but towards the beginning of the $8,000 credit qualification period, the government changed the set of paperwork required to qualify for the credit. This was likely done to stem a flood of fraudulent applications. The IRS simply could not keep up with the research necessary to validate all the applications, so after weeks passing, some taxpayers received requests for more paperwork. After sending the paperwork in, there were instances where the IRS could not keep the information organized, and taxpayers who were counting on the credit were stuck in limbo.
It was surely a mistake for taxpayers to count on the government to distribute the credit in a timely manner. Many assumed the credit would arrive soon and planned their finances around a potential increase of up to $8,000 from the government. When the $8,000 didn’t come as expected, homebuyers were thrust into an uncomfortable financial position. Looking back, it’s easy now to say one should plan their finances only by what they have in the bank, not by what they expect to receive in the future.
Are you still waiting for the homebuyer credit? Do you think that the IRS could have implemented a better plan if the government wanted to try to stimulate the housing sector of the economy? Was all this credit mess worthwhile now that we see the real estate market is still a mess?
Published or updated June 8, 2011.