Sunday, October 18, 2009

Few using state's home tax credit

Official hoped $5,000 rebate would spur new-house sales

By Chris Otts • • October 17, 2009

As the sun sets on the $8,000 federal tax credit for first-time home buyers, some Louisvillians are taking advantage of a lesser-known deal: up to $5,000 off their Kentucky tax bill for buying a new house.

But it's unclear whether the state credit, which went into effect July 26 and cannot be combined with the federal credit, is actually spurring sales. The credit can be used only by buyers of new homes that hadn't been occupied previously.

So far, 70 Jefferson County home buyers have been approved for the credit, said Valeria Cummings, spokeswoman for the state Department of Revenue.

For comparison, 2,244 homes were sold in August and September by members of the Greater Louisville Association of Realtors, whose agents work mostly in Jefferson, Bullitt and Oldham counties. Statewide, 414 buyers have been approved, obligating the state for more than $2 million in tax rebates, Cummings said.

The credit runs out July 26, 2010, or once the state has approved $25 million in rebates, whichever comes first.

“It was hoped by offering the credit, more people would look at buying homes, which could only help improve the economy,” Cummings said.

Financial adviser Sean Miranda and his wife, Jackie, were among the first in the state to qualify for the deal in July after buying a $350,000 house off Urton Lane in Middletown. Sean Miranda said they needed a bigger house after being surprised with twins eight months ago.

But it was getting the house for $50,000 off the asking price — not the tax credit — that motivated them to close the deal, Miranda said.

“It (the credit) was certainly the icing on the cake,” he said. “But more important was the opportunity to buy a brand new home at a tremendous discount.”

Three other Louisville and Bullitt County buyers who took advantage of the credit also said they would have bought a new house anyway. Josh Grimes said he and his wife will probably use the money to buy an appliance or bedroom furnishings for their new house in Zoneton.

The credit is designed to help move a glut of new houses off the market, thus clearing the way for more home construction, which has a big economic impact, said Bob Weiss, executive vice president of the Home Builders Association of Kentucky.

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The Mirandas' house in Middletown had been on the market for two years, said Greg Bauer, the builder. But Bauer said he hasn't built another house since because of weak demand for new homes — a reality the rebate hasn't changed.

Weiss, who helped draft the legislation, said it's too soon to tell whether the credit is spurring sales. “I think that's a story left untold,” he said.

Not only is the Kentucky credit smaller than the federal credit, it also is nonrefundable. So unlike the federal deal, the tax credit is limited to the amount of the buyer's state tax liability. The only way to get the full $5,000 is to owe that much in state taxes. If your tax bill is, for example, $2,000, that's the limit of the credit you can collect.

In Kentucky, those making nearly $90,000 per year face a $5,000 tax liability. Unlike the federal credit, the state offer isn't limited to first-time home buyers. Also, the federal credit starts to phase out for individuals making more than $75,000 or married couples making more than $150,000.

Joe Pusateri, president of Elite Homes, estimates about seven buyers of his houses, which start at about $250,000, have qualified for the state credit.

“At least it's nice that we have something that kind of fits our customer base,” he said.

Industry leaders hope the federal first-time credit will eventually spur sales of more expensive homes, too, once buyers are able to sell their starter houses.

Recently, members of the Louisville Realtors association have had three months of sales increases over the same period a year earlier. That follows two years of declining sales.

Louisville real estate agent Teresa Morgan said the industry has promoted the federal tax credit more heavily than the state credit. Many buyers who qualify are unaware of it, she said.

“I don't get people calling me and saying, ‘What can I do to take advantage of the $5,000?'” said Morgan, who also leads the sales and marketing council for the Home Builders Association of Louisville.

Weiss said the state home builders group is planning a big marketing push for the credit, especially once the federal rebate expires Dec. 1.

“Just like the $8,000 one, it might take a while to catch on,” he said.

It's also not as easy to claim the Kentucky credit, Morgan said. For example, the state requires a form be sent only by fax to the revenue cabinet within seven days of the closing.

“It's real particular with how you have to file for it — a little confusing,” said Julie Riley, who qualified for the deal after buying a $220,000 house in Mount Washington with her husband, Brian.

The Rileys didn't find out about the credit until they had decided to buy a house, Julie Riley said. But considering the couple paid almost $5,000 in state taxes last year, this year's credit will be “a nice bonus.”