Senate, House Votes Unanimously to Extend Homebuyer Tax Credit

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WASHINGTON -- Buying a home is about to get cheaper for a whole new crop of homebuyers -- $6,500 cheaper.
First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package enacted earlier this year. But with the program scheduled to expire at the end of November, the House voted 403-12 Thursday to extend and expand the tax credit to include many buyers who

WASHINGTON -- Buying a home is about to get cheaper for a whole new crop of homebuyers -- $6,500 cheaper.

First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package enacted earlier this year. But with the program scheduled to expire at the end of November, the House voted 403-12 Thursday to extend and expand the tax credit to include many buyers who already own homes. The Senate approved the measure Wednesday, and President Barack Obama is expected to sign it.

Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers -- or anyone who hasn't owned a home in the last three years -- would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.

"This is probably the last extension," said Sen. Johnny Isakson, R-Ga., a former real estate executive who championed the credits.

The homebuyers tax credit is one of two tax breaks totaling more than $21 billion that was included in a bill extending unemployment benefits for those without a job for more than a year. The other would let companies now losing money recoup taxes they paid on profits earned in the previous five years.

"We are still in a world of economic hurt, and Congress must continue to act boldly and creatively," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. "With the right mix of tax breaks and investments we will get through this recession and get folks working again."

The real estate industry has been pushing to extend and expand the housing tax credit. About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.

Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes. While the measure passed the Senate by a 98-0 vote, Sen. Kit Bond, R-Mo., questioned its efficiency in stimulating home sales.

"For the vast majority of cases, the homebuyer tax credit amounted to a free gift since it did not affect their decision to purchase a home," Bond said. "And for the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place."

The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.

The credit would be extended an additional year, until June 30, 2011, for members of the military serving outside the United States for at least 90 days.

Chart Courtesy of National Association of Realtors

HOMEBUYER TAX CREDIT: REVISED NOVEMEBER 2009

FEATURE

Jan 1 – November 30, 2009 Rules as enacted

February 2009

December 1 – April 30, 2010 Rules as enacted

November 2009

First-time Buyer:

Amount of Credit

$8000

($4000 married

filing separate)

$8000

($4000 married

filing separate)

First-time Buyer: Definition for Eligibility

May not have had an interest in a principal residence for 3 years prior to purchase

Same

Current Homeowner: Amount of Credit

No Provision

$6500

($3250 married

filing separate)

Effective Date:

Current Owner

No Provision

Date of Enactment

Current Homeowner: Definition for Eligibility

No Provision

Must have used the home sold or being sold as a principal residence consecutively for 5 of the previous 8 years

Termination of Credit

Purchases after November 30, 2009.

(Becomes April 30, 2010 on Date of Enactment.)

Purchases after

April 30, 2010

Binding Contract Rule

None

So long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until

July 1, 2010 to close.

Income Limits

(Note:Increased income limits are effective as of date of enactment of bill)

$75,000 – single

$150,000 – married

Additional $20,000 phase out

$125,000 – single

$225,000 – married

Additional $20,000 phase out

Limitation on Cost of Purchased Home

None

$800,000

Effective Date of Enactment

Purchase by a Dependent

No Provision

Ineligible

Effective Date of Enactment

Anti-fraud Rule

None

Purchaser must attach documentation of purchase to tax return

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