The Extended Home Buyer Tax Credit

If you are waiting for lobbying efforts to expand the first-time home buyer credit to $15,000, don't! It appears unlikely that anything that generous will happen. There is hope however for move-up buyers though and first-timers who have tarried.

There should be little doubt that the single most potent element in the recent spate of economic stimulus programs has been the first-time home buyer tax credit. According to the Treasury Department, it has brought over 1.2 million first-time buyers into the market who have claimed only $8.5 billion of the $13.6 billion set aside for the homebuyer tax credits this year.

At the urging of industry participants to prevent home sales from declining further as the economy struggles to recover from the current housing industry lead decline, Senate Majority Leader Harry Reid announced this week that he has scheduled a vote on November 2, and Congress could approve extensions of an $8,000 first-time home-buyer tax credit as soon as November 3. The bill would also extend benefits to move-up buyers with higher income limits and include an extension of unemployment benefits.

The legislation, which had been delayed by Republican demands for votes on several amendments--including amendments aimed at the community activist group ACORN, immigration and another to remove Geithner’s ability to extend the financial bailout program beyond its expiration at the end of the year--would extend benefits to home-buyers who have lived in their current home for at least five years to receive a credit of $6,500. It also increases income levels, allowing couples earning as much as much as $225,000 and individuals earning up to $125,000 to qualify, while the income limits for first-time buyers would remain at $75,000 limit for individuals and $150,000 for couples.

Like the original tax credit, the extension is available only to owner occupied properties, and requires those receiving the tax credit to remain in their new home for three years. Otherwise, they would have to repay the credit. The bill also limits the tax credit to the purchase of homes valued at less than $800,000.

The Senate proposal would also provide $2.4 billion to extend unemployment benefits by 14 weeks nation-wide, and by 20 weeks in states with the highest jobless rates.

The proposed bill, which has the Obama administration's approval, has provisions intended to make it budget deficit neutral. The Joint Committee on Taxation estimated that the cost of extending the tax credit, $10.8 billion over 10 years, would be absorbed by provisions delaying a tax break for multinational companies scheduled to take effect next year, while the extension of unemployment benefits would be offset by extending an employer payroll surtax that is slated to expire this year.

All this has come at a time when most were deferring their first home purchase for better times, and the addition of provisions for move-up buyers is certain to help further strengthen financial industry ledgers.