Homebuyer Tax Credit Extended

The federal government’s first-time homebuyer tax credit was scheduled to expire Nov. 30. The credit, part of the Obama administration-backed economic stimulus package, rewards Americans for buying a home by cutting them a check for 10% of the purchase price up to $8,000.

Analysts attribute close to 20% of home sales nationally this year to buyers eligible for the tax credit, and the National Association of Realtors claims first-time buyers account for 50% of all sales.

The Senate voted to extend the tax credit for five months to April 30, 2010, and make the credit available to all new homebuyers, not just to first-timers. The new legislation will extend the $8,000 credit for first-time buyers and create a $6,500 credit for others so long as they have owned a home for at least five consecutive years since 2001.

For homebuyers across the country, the expanded tax credit will allow more people to qualify for the credit. While two-thirds of American families own their own home, and most earn less than the income limits that have been established within the extension, more buyers may be eligible. Move-up buyers don’t have to sell their current home to qualify for the new credit, but the money cannot be used to buy a vacation home.

Analysts opposed to a tax-credit extension question how many of the buyers the $8,000 handout actually coaxed into the market. An economist with the Brookings Institution, a nonprofit public policy organization, estimates 85% of those who have used the credit would have bought a home anyway, given low prices and mortgage rates. Of about 2 million buyers who would make use of the credit were it extended through 2010, 1.6 million would buy even without the credit, the economist estimates.

The legislation included provisions added to address complaints of fraud as well. The Internal Revenue Service is given greater authority to oversee the process to root out fraud, and provisions are added in response to past abuses of false sales or underage buyers. An investigation by the Treasury Department’s Inspector General for Tax Administration found that more than 580 children, some as young as four years old, had received $627,000 in first-time homebuyer credits. The IRS has identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.

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