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States Utilize Government Foreclosures Program’s Tax Credit
May 8th, 2009 by 
Joseph Smith
Several states have launched initiatives to help cut down the oversupply of foreclosed homes by taking advantage of the $8,000 tax credit provision of President Obama’s government foreclosure properties program.
The $8,000 tax credit, part of the government foreclosures program launched this year, is available to taxpayers who are buying their own homes for the first time in 3 years and who can complete their home purchase before December 1, 2009.
Qualified home buyers can claim their $800 tax credits on their 2008 tax returns through an amendment or claim the credits on their 2009 tax returns.
Recognizing opportunities in this provision of the government foreclosures program, several states have created loan programs that would advance the tax credits to qualified taxpayers so they could buy their homes and help reduce the glut of foreclosed homes and other homes for sale. The loans are provided as second mortgages that would be paid when the home buyers receive the $8,000 tax refunds from the IRS.
Missouri takes the credit of having first thought of the scheme using the government foreclosures program. Its scheme allows home buyers to advance the tax credit, up to six percent of the home sales price, without interest and pay it before June 2010.
If the advanced tax credit is not paid, it would be converted into a 10-year fixed-rate second mortgage. Missouri also requires that the first loan is a 30-year fixed-rate loan issued by lenders participating in Missouri Housing Development Commission’s bond programs.
Meanwhile, the state of Washington, which is already running its tax credit loan program, plans to expand the program into a down-payment program. James McIntire, the state treasurer, has proposed the creation of an interest-earning public-private partnership fund that would help prospective home buyers with their down payments.
McIntire recommended the investment of $25 million into the private-public fund, which is deposited in a bank that would provide credit lines to the Washington Housing Finance Commission for its down payment loan schemes.
Other states which have launched their own loan initiatives using the government foreclosures program’s $8,000 tax credit provision are New Jersey, Delaware, Tennessee, Ohio, Pennsylvania, Idaho and New Mexico. Some states added low interest rates on the loans; some offered the loans interest-free for certain periods.
As these loan programs make progress, more states are expected to create their own schemes from the tax credit provision of the Obama’s government foreclosures program.
