After two weeks of delay, the Senate last night cleared the way to pass a seven month extension and expansion of the tax credit for homebuyers. By an 85 to 2 roll call vote, the Senate voted to cut off debate on a package of measures that includes the homebuyer credit, making it virtually certain that the legislation will reach President Obama for his signature this week.
The homebuyer tax credit, due to expire in 28 days, would be extended through April 30 of next year. First-time buyers who are in process of making a purchase would not need to worry about qualifying for the $8,000 credit if they close after the November 30 deadline.
For the first time, the legislation cleared last night makes move-up buyers as well as first-time buyers eligible for a credit. The $8,000 maximum first-timer credit will continue and will now available to couples with income up to $225,000, a nearly $55,000 increase above the level in existing law. A new $6,500 maximum credit would also be available to move-up homeowners who have lived in their current residence for five of the prior eight years.
The tax credit has fired the housing market, driving existing home sales to the highest level in over two years. The National Association Realtors reported sales jumped 9.4 percent to a seasonally adjusted annual rate of 5.57 million units in September and are 9.2 percent higher than the 5.10 million-unit pace in September 2008.
Only two Republicans voted against the credit. One of them, Senator Kit Bond (R-Mo.), said, “We’re kidding ourselves if we think we can prevent more fraud, more taxpayer losses,” “The most effective means of preventing fraud is simply to not extend the credit.”
The legislation included provisions added to address complaints of fraud. The Internal Revenue Service is given greater authority to oversee the process to root out fraud, and provisions are added in response to past abuses of false sales or underage buyers. An investigation by the Treasury Department’s Inspector General for Tax Administration found that more than 580 children, some as young as four years old, had received $627,000 in first-time homebuyer credits. The IRS has identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.
A number of economists have voiced concern about the $16.7 billion.cost of the credit and the wisdom of spending up to $400,000 per homebuyer to stimulate real estate sales. The White House has been lukewarm at best. However, it is virtually certain that the President will sign the legislative package, which contains an expansion of unemployment benefits as well as the tax changes.
The legislation cleared last night also contains a provision supported by the National Association of Home Builders. It helps larger companies strapped for cash with net operating losses this year or in 2008.
Ordinarily these companies can carry back these losses for only two years to qualify for a tax refund. The provision would make this process extends the carry-back to five years for either 2008 or 2009. The tax break will now apply to losses in either 2008 or 2009, and the income cap will come off.
A similar provision, applying just to 2008, was included in the president’s economic recovery bill last winter but limited to smaller companies to keep down the cost to the Treasury.
Both tax breaks – the homebuyer credit and the change to net operating loss – will be offset by tax changes affecting foreign tax credits, chiefly important to large multinational corporations, according to the Senate Finance Committee.
How about just letting the housing market correct itself? These tax credits only delay the inevitable (housing prices have not completed their market-driven correction) by propping up the housing market on shifting sands.
this is great for those of us who were not able to find the right house untill recently. my fiance and i have been looking for a house for almost a year but it was not untill recently we found one we could afford and in an area we wanted to move. the house was on the market for three days before we put a bid on it and we are still trying to close on it. it is a blessing that the credit got extended because otherwise we would not have made the deadline. so i say to everyone who is not in favor of the extension get over it. if you all were in our situation you would be jumping for joy right now!
Great, an $8,000 incentive to maintain a hyper inflated market of homes, which people cannot reasonably afford without becoming “house poor.” This is a not so brilliant economic stimulus, which mortgages the futures of our young homebuyers to curb the losses of our sellers. All the while tying up the velocity generating incomes of these individuals to the point of halting consumer spending and destroying our GDP. Where are the economists here?!
What about those of us who just sold a home last year and have waited to buy now, when the market was at a more affordable place? We don’t qualify as first time buyers and we miss out on the $6,500 credit for current homeowners. Why couldn’t they have just dropped the “first time buyer” criteria so we all could qualify?
What is the logic?
1. If you buy after December 1, you may qualify for the $6500 credit but you must have lived in your previous home 5 of the past 8 years.
That’s a good question for your congressman or senator. I’m not sure there is a logical answer.
what about some one bought house in August 2009 will get 6500 credit?
No. The new credit for exisiting homeowners is not retroactive. It took effect November 9.
I am looking to buy a rental house. Will I be eligible to the $6,500 tax credit if I don’t live in it? My husband and my joint income is less than $225,000, we have lived in our own home since we purchased it in 2002. The house price is $160,000.
No, it must be your principal residence which means you must live in it. You cannot rent it out.
This is a joke what about all the people who bought houses between January 1, and November 5th 2009. They just get to pay for this nightmare of a bill. I am sick of paying through the nose for other to get cash for clunkers and tax credits on houses. All I ever get is a big bill!
This was paid for by the Home Builders association who are BIGTIME campaign contributors and lobbyists!
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