Home Buyer Tax Credit Could Soon Be Extended, Expandedby
It’s increasingly likely that Congress will extend and expand the popular home buyer tax credit, which will expire next month. CNN.com reported today that a compromise proposal based on bills that have already been introduced could pass the Senate as early as this week (assuming that it is attached to a bill to extend unemployment benefits).
The compromise bill would likely open the program to some existing homeowners. The expiring tax credit is limited to buyers who have not owned a home for the last three years.
According to a CNN.com story today:
* First-time buyers could continue to claim up to $8,000. But existing homeowners who have lived in their home for five years could receive up to $6,500 if they trade up to a larger principal residence.
* The full credit would be limited to buyers who earn less than $125,000 a year and for married couples with annual incomes up to $225,000.
* The credit could only be used for homes selling for $800,000 or less.
* Contracts must be signed by April 30, 2010 and sales must close by June 30.
Mark Zandi, chief economist for Moody’s Economy.com (MCO), told me recently that he supports the extension because the housing market could take a big step back without it. But he agreed with critics that it is one of the most inefficient ways for the government to support housing.
According to Zandi, only 22% of about 1.8 million buyers who will claim the soon-to-expire credit would not have bought a home but for the incentive. Expanding the credit to include previous homeowners and extending the credit through June will cost about $30 billion, on top of about $8 billion that would have already been spent, he said.
The compromise bill outlined here might be cheaper because it seems to more narrowly define the existing homeowners who can take advantage of the credit.