The 2008 Housing and Economic Recovery Act

Background

Became law July 30, 2008

Product of months of intense advocacy by NAHB and membership

Bipartisan effort of lawmakers

“The most important housing legislation in a generation.” Sen. Dodd, D-Conn.

What it will do

Help home buyers and home owners

Promote affordable housing

Fight falling housing prices

Help home owners facing foreclosure

Improve mortgage liquidity and provide lifeline to Fannie Mae and Freddie Mac

Legislation overview

$7,500 first-time home buyer tax credit

FHA modernization

GSE reform

Mortgage revenue bond program

Low-Income Housing Tax Credit

Home buyer tax credit

Temporary $7,500 credit for first-time home buyers (Credit = 10% of the purchase price of a home, up to $7,500)

Homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible

Goal: bring first-time home buyers back into the housing market

Home buyer tax credit

First-time buyer defined as: individual or married couple who has not owned a principal residence for 3 yrs.

Vacation home/rental property ownership doesn’t disqualify

Both spouses must be first-time home buyers

House boats, mobile homes, duplexes qualify

Home buyer tax credit

Credit claimed on buyer’s tax return

2009 buyers can claim on 2008 return

Taxpayers anticipating credit and certain of eligibility can reduce income tax withholding

Can be claimed by those who pay no taxes

Tax credit income limits

Full credit amount is available for single filers with up to $75,000 of modified adjusted gross income

Married filers: $150,000 limit

Partial credit available to $95,000 for single, $170,000 for married

Tax credit recapture

Credit works like zero-interest loan

Repaid on tax form at 6.67% of credit amount per year over 15 years

$7,500 credit = approx. $500 repaid per tax year

Recapture begins with tax return 2 years after credit is claimed

Tax credit acceleration

If home is sold before 15 years, unpaid recapture amount is accelerated

BUT -- only if there is sufficient capital gain from the sale

If insufficient gain, remaining recapture amount is forgiven

Thus, IRS assumes “price risk” for the home

Tax credit expected impact

Will spur large number of purchases due to profile of average first-time buyer:

Constitute about 40% of all home buyers in the market each year

Median cost of home purchased = $150,000

Average income tax liability is just $5,000

Tax credit expected impact

Influx of new first time buyers will enable existing owners to sell and purchase larger or newer home

“Ladder” effect will increase sales, prices will stabilize as supply and demand comes back into balance

FHA modernization & expansion

Increases FHA loan limit up to $625,500

Raises floor for area FHA mortgage limits to $271,500

Simplifies FHA rules for condominium sales

Additional authority for FHA to insure mortgages of home owners facing foreclosure

Increases FHA down payment requirement from 3 to 3.5%

Ends seller-assisted down payment programs as of October 1, 2008

FHA modernization & expansion

GSE reforms

New regulator for Fannie, Freddie, Federal Home Loan Banks

GSE-backed loan limits increased to $625,500

Explicit financial guarantee to GSEs

Treasury Dept. authorized to take debt or equity stakes as necessary

Other tax incentives

$11 billion in new mortgage revenue bond authority

$4 billion in Low-Income Housing Tax Credit reforms

Additional standard deduction amount for home owners who do not itemize

Negative change to capital gain exclusion rules for second homes

Impact of other provisions

GSEs will continue role in the housing finance system and help keep mortgage interest rates low

Mortgage revenue bond authority can be used to refinance troubled mortgages or finance affordable multifamily rental housing

Additional standard deduction for non-itemizers compensates for rising property tax bills

Consumer Web site

www.federalhousingtaxcredit.com NAHB launched site to educate consumers

Includes: Tax credit overview

FAQs

Links to resources

175,000+ unique visits so far

Tax credit promotion NAHB has materials to help you promote

the credit at: www.nahb.org/mythbuster

Customizable materials include:

Print ads

Web site ads

Fact sheet

Talking points

Consumer flyer

Op-ed

Radio scripts

Newsletter article

Print ads

Web site banner ads

Key consumer messages

Unprecedented “window of opportunity”

Don’t wait to take advantage of:

Temporary tax credit

Great selection of homes available

Today’s competitive prices

Affordable financing options

Don’t try to time the market

One final note…

It is important to encourage first-time buyers to consult with a tax practitioner to:

Confirm eligibility and address unique situations

Determine ways to maximize the impact and timing of the credit

NAHB assistance

For help leveraging the resources available from NAHB;

to suggest new resources;

or to share stories about how you’ve successfully promoted the credit:

contact NAHB Public Affairs at publicaffairs@nahb.com

or 800-368-5242, ext. 8447