Senate Approves Homebuyer Tax Credit Extension

The Senate today voted unanimously Wednesday night to extendrnthe $8,000 tax credit for home buyers beyond its scheduled November 30, 2009rnexpiration date.  The credit would bernavailable until April 30, 2010.  Underrnthe new legislation the credit will also now apply to home buyers who arernbuying their second or subsequent home. rnThe credit currently applies only to first time home buyer.

The Senate vote was 98 to 0

Under a compromise reached late last week, the tax credit forrnveteran homeowners will apply only to those who have lived in their currentrnresidence for at least five years.  Therncredit for these buyers will be capped at $6,500 while first time buyers willrncontinue to receive $8,000.

Income levels will be extended from the current limits ofrn$75,000 for a single purchaser and $150,000 for couples to $125,000 andrn$225,000 respectively.  Above thosernlimits there are diminishing credits available.

The bill was passed as an amendment to legislation extendingrnunemployment benefits.  The House is expected to vote on the bill before the end of the week.

Housing interests, especially the National Association of HomernBuilders and the National Association of Realtors, has pushed strongly for thernextension and the Obama administration has also lobbied heavily for itsrnpassage. However, not everyone was in favor of it.

Some critics have charged that the tax credit has merely movedrnsales that would have occurred sooner or later to an earlier date and that,rnwhen the credit finally does go away, the market will experience another severerndownturn. A diametrically opposed opinion would have it that, while 1.4 millionrnclaims have been made, few sales were actually inspired by the credit.  Others have argued that the current interestrnrates and low housing prices are enough of an incentive without spending taxrnmoney. The extension is expected to cost an estimated $11 billion on top of thern$10 billion that has been spent to date.

There have also been charges of fraud in the operation of thernprogram.  To combat this the new law hasrnsome expanded safeguards including a minimum age of 18 for obtaining therncredit, a requirement that a settlement statement accompany the tax returnrnclaiming the credit and a prohibition on non-arms length transactions.

Another criticism of the extension has been that it endsrnjust as the “spring market” is getting underway.  Diane Olick writing for CNBC's RealtyCheckrnsaid it “is sort of like offering cheap snow boots in July.”

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