US Senators Call For Extension Of Homebuyer Tax Credit

by Leroy Baker, Tax-News.com, New York

22 October 2009

Senate Banking Committee Chairman Chris Dodd joined Senator Johnny Isakson in calling for an extension of the homebuyer tax credit at a hearing on the state of the US housing market on October 20.

According to Dodd, a Connecticut Democrat, the tax credit has already been used by nearly two million first-time homebuyers and has helped to arrest the fall in house prices and stabilize the nation's housing market in general.

“As part of the economic recovery package, we created an USD8,000 first-time homebuyers’ tax credit, replacing an unsuccessful and overly complex loan program with one that is already having an impact,” Dodd explained. “The credit is set to expire in five weeks. But the work of stabilizing the housing market won’t be done. We still need to use every tool at our disposal to try and fix this problem."

“So our first witness, Senator Johnny Isakson, and I have proposed extending the tax credit through the end of next June, as well as expanding it so that more middle class families can take advantage of what I believe has been an effective program," Dodd added.

“The current homebuyer tax credit is set to expire on November 30, and we are approaching the worst three months of the year for the housing market," said Isakson, a Georgia Republican who has run a real estate business for over 30 years. "It is imperative that we retain the momentum we have gained as a result of the current credit and go into the spring market with the increased consumer confidence necessary for establishing a viable market.”

Isakson plans to introduce an amendment to legislation extending unemployment benefits that would extend and expand the current homebuyer tax credit. Isakson’s amendment would keep the amount of the credit at USD8,000, but would remove the first-time homebuyer requirement, extend the tax credit until June 30, 2010, and raise the income limits to USD150,000 for an individual or USD300,000 for a couple.

For purchases made in 2010, taxpayers would be able to claim the credit on their 2009 income tax return. Homebuyers would not have to repay the credit, provided the home remains their principal residence for 36 months after the purchase date. However, the 36-month recapture provision would not apply in the case of a member of the armed forces on active duty who moves pursuant to a military order and incident to a permanent change of station.

The Joint Committee on Taxation has scored the amendment at USD16.7bn over five years.

The first-time homebuyer credit was included in the Housing and Economic Recovery Act of 2008. For homes purchased in 2008, the credit operates like an interest-free loan because it must be repaid over a 15-year period. However, the credit was expanded in 2009 for homes purchased in 2009, increasing the amount of the credit and eliminating the requirement to repay the credit, unless the home ceases to be the buyer's principal residence within a 36-month period. The credit is 10% of the purchase price of the home, with a maximum available credit of USD7,500 (USD8,000 if the home was purchased in 2009) for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns. The full credit is available for homes costing USD75,000 or more (USD80,000 if purchased after December 31, 2008, and before December 1, 2009).

However, the program, whilst widely supported, has come in for criticism due to its apparent susceptibility to fraudulent claims. According to the Associated Press, since the tax credit was expanded in the Recovery Act last February, the Internal Revenue Service has queried 107,000 applications and identified 167 criminal schemes involving the tax credit.

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