The $8,000 tax credit for first-time home buyers, due to expire Nov. 30, will be extended to April 30, 2010, with borrowers given another 60 days to close the sale under a proposal by Senate Democrats. In addition, the proposal would let current homeowners who buy a new home qualify for a $6,500 credit if they have lived in their prior residence for five years.
Lawmakers expect to consider the measure as part of a bill to extend unemployment benefits. That measure has been held up by a disagreement with Republicans over other proposed amendments.
Lawmakers have said they want to keep home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression. The credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.
House Democrats are waiting to see the final Senate agreement before deciding whether to support it.
More than 1.2 million borrowers through Oct. 9 have claimed almost $8.5 billion of the $13.6 billion set aside for first- time home buyer tax credits this year, according to U.S. Treasury data. However, government investigators recently reported that audits suggest widespread abuse and errors in the program. As of September 30, the IRS has identified 167 possible criminal schemes and opened nearly 107,000 examinations of potential civil violations. Government officials said many suspect claims could turn out to be simple errors but 60% of taxpayers who claimed the credit had incomes below $50,000, suggesting that some people could not afford to purchase a home.
Realtors and mortgage bankers said the credits, which are available for taxpayers who haven’t owned a home in the past three years, have helped stabilize housing sales this year.
“Already we’ve seen the impact of this credit in jump- starting the housing sector,” Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said on the Senate floor. He said it would be a “great mistake” to allow the break to lapse. Dodd estimated that more than 70 percent of current home buyers would be eligible for the break.
As with the “Cash for Clunkers” program, while the tax credit speeds demand for homes from next year to this year, it won’t necessarily increase overall sales, several analysts said.
Critics contend that by expanding the credit, more people will get involved, but they feel that you are paying people tax dollars to do what they probably would have done anyway. It is hoped that the credit will continue to fuel the sales of lower-priced homes but if the credit expires, home sales may slow down and have to wait for natural demand to build up again.
Senate Minority Leader Mitch McConnell, a Kentucky Republican, agreed that most lawmakers support the unemployment and home buyer measures. “We’re not that far away from an agreement,” he said.
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