Update Nov. 5, 2009: Congress has passed the legislation and it has been sent to President Obama for his signature. Various news reports speculate that could happen as soon as Friday, Nov. 6.
The U.S. Senate appears to have agreed on a plan to extend the first-time home buyer tax credit and expand a reduced version of it to move-up buyers as well.
With barely a month left before the current tax credit expires, the proposal would provide a tax credit of up to $8,000 for first-time home buyers and up to $6,500 for move-up buyers who sign a contract to buy a home on or before April 30, 2010. Move-up buyers are eligible “so long as the home they are leaving has been used as their principal residence for five years or more,” according to Sheridan Watson, press officer for Sen. Johnny Isakson (R-Georgia), a vocal proponent of the home buyer tax credit.
The income limits for both first-time and move-up buyers would be increased to $125,000 for an individual and $225,000 for couples filing a joint return. The cost of the house can’t be more than $800,000.
“That probably covers two-thirds to 75 percent of the move-up buyer market,” says Robert Dietz, assistant vice president for tax and policy issues at the National Association of Home Builders
To be eligible for the credit, buyers would need to complete the sale by June 30. Purchases made in 2010 could be claimed on the buyer’s 2009 tax return. Home buyers would not have to repay the credit as long as they live in the house for three years after the purchase date. There are exceptions for members of the military serving overseas.
Responding to reports of suspected fraud among individuals who have claimed the tax credit, the proposal also requires the taxpayer claiming the credit to attach the HUD-1 settlement statement to their return and gives the IRS greater oversight during processing returns instead of having to wait for an audit to question the claim.
It has not yet been determined if the proposal will be presented as an amendment to the bill to extend unemployment benefits or as a stand-alone measure.
“In terms of the political prospects, who knows?” Dietz says. “I can’t forecast how it would go down. In the last 36 hours, it’s looked like it was moving forward, then it stopped. It’s been very chaotic.”
With Senate approval, the bill then needs to clear the House of Representatives, where previous home-buyer tax credit legislation has faced stiff opposition. This time, however, there is substantial support in the House from leadership in both parties.
Walt Molony, spokesman for the National Association of Realtors
, says his organization’s lobbyists say they expect the House to move quickly on the bill. “The expectations are that essentially identical language would go through the House to send a bill quickly to the president,” he says.
If the bill passes as it’s now proposed, Molony says it may be enough to stabilize the housing market. The benefit from the tax credit will be seen more quickly for existing-home sales than for new-home sales, Molony says, because builders have pulled back from housing starts to focus on standing inventory and because of continued difficulties in securing construction financing. However, with the expanded credit, NAR’s chief economist, Lawrence Yun, projects new-home sales of 509,000 for 2010, which would be a 26.5 percent increase over NAR’s new home sales projections for 2009.
“We’re revising our forecast right now,” he says. “With an extension to more buyers through the middle of next year, this will be sufficient to get us to a self-sustaining market and stabilizing home prices.”