Sens announce deal to extend and expand homebuyer tax credit

A bipartisan group of senators announced a deal Thursday to extend the
first-time homebuyer’s tax credit set to expire within weeks.

Under the agreement struck by Sens. Chris Dodd (D-Conn.) and Johnny Isakson (R-Ga.), the credit will last until the end of April and can be applied to homes worth up to $800,000. Dodd and Isakson said that as many as 70 percent of Americans will be eligible for it.

{mosads}The home credit’s backers, which include Senate Majority Leader Harry Reid (D-Nev.), have said that it can help the economy recover and has already led to the jump in home sales seen around the country in recent months.

Isakson called the provision a “once-in-a-lifetime” credit that can “bring the housing market back to some sense of vitality and values.”

Though the previous provision could only be used by individuals making up to $75,000 and couples making up to $150,000, the extended credit can be used by individuals with incomes of up to $125,000 and couples of up to $225,000.

The deal also provides a new $6,500 credit to homebuyers looking to move out of their current homes into more expensive ones.

The first-time homebuyer’s credit was initially passed as part of the stimulus in February and was set to expire at the end of next month.

Isakson and Dodd said Democratic leaders plan to attach the proposed extension to legislation that also prolongs expiring unemployment benefits by at least 14 weeks and a tax provision known as the net operating loss carryback, which allows small businesses to write-off losses incurred during the recession.

The unemployment benefits and the carryback tax provision were both parts of the $787 billion stimulus. The package of stimulus extenders is likely to hit the Senate floor next week. The House has passed a 13-week extension of the unemployment insurance but it has yet to approve home credit and carryback extensions.

The homebuyer credit extension will cost $10.2 billion. Senate Finance Chairman Max Baucus (D-Mont.) said that the cost will be offset by delaying a tax break for U.S.-based international corporations that was scheduled to start in 2010. Instead, the new tax provision will begin in 2017, Baucus said.

{mosads}The Obama administration, which had withheld support for the credit as lawmakers were negotiating a deal, expressed support for it Thursday.

“This credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide,” said Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan in a statement. They also urged lawmakers to include provisions to prevent tax fraud.

The Senate deal does provide the Internal Revenue Service with the ability to review a home purchase as it’s being processed instead of waiting until its completion.

Though lawmakers have touted it as a successful stimulus provision, economists have said that the credit isn’t doing that much to boost the economy. Most of the people — approximately 80 percent — who have used it would have bought a home without it, said Dean Baker, co-director of the Center for Economic and Policy Research.

“This means that we just gave these people $8,000 for nothing,” Baker said.