Real estate industry trade groups are mounting a final push for an extension of the first-time homebuyer tax credit, with Sen. Johnny Isakson planning to tie the issue to an extension of unemployment benefits.
Lawmakers are holding two hearings this week during which the tax credit, scheduled to expire Nov. 30, will be debated.
On Thursday, the U.S. House Ways and Means Oversight Subcommittee will discuss more than 100,000 suspected cases of fraud involving the credit currently being investigated by the IRS.
In testimony before the Senate Banking Committee today, Isakson, R-Ga., said he plans to introduce an amendment to legislation extending unemployment benefits that would make the current $8,000 tax credit available until June 30.
Isakson’s amendment would raise the income limits for the credit to $150,000 for individuals and $300,000 for a couples. The existing tax credit can’t be claimed by individuals making more than $95,000 or couples with adjusted incomes of more than $170,000.
Opponents question whether the tax credit is worth the expense to taxpayers, since even industry groups concede that most of those who have claimed it so far would have bought a home anyway. The IRS estimates that about 1.4 million homebuyers had claimed the credit through August, and the National Association of Realtors has estimated that it was instrumental in getting 355,000 homebuyers off the fence.
Earlier this year, Isakson introduced a standalone bill, S 1230, that would nearly double the tax credit’s ceiling to $15,000 and lift first-time homebuyer and income restrictions altogether. The Congressional Budget Office estimated a similar bill introduced by Isakson in 2008 would have cost $34.2 billion to implement.
The estimated cost of his latest proposal would be $16.7 billion over five years, Isakson said, citing the Joint Committee on Taxation.
"Expanding the tax credit has a cost, and it is a significant amount of money," Isakson said. "However, it is less than 3 percent of the amount of the stimulus, and we know from what has happened in the last nine months that the homebuyer tax credit works."
Testifying on behalf of Realtors, NAR Vice President Ron Phipps addressed the question of whether the tax credit would "just go to the people who would have bought a home anyway and thereby will simply pocket the $8,000 check." …CONTINUED
Phipps said there’s a "compelling case" for tapping financially healthy renters.
Falling home prices and low interest rates mean that the pool of renters who can afford to buy a median-priced home has grown to more than 16 million, up from 11.5 million at the turn of the century.
"Just nudging even a small share — say 5 percent — of these financially healthy renters into buying via a tax credit check will mean 800,000 additional home sales," Phipps claimed.
Three real estate industry trade groups — NAR, the National Association of Home Builders, and the Mortgage Bankers Association — this week asked Obama administration officials to endorse an extension of the credit, which will expire next month.
"Although we are seeing some improvement in the housing market, it is essential that the favorable impact of the first-time homebuyer credit be sustained beyond the upcoming expiration date," the groups said, crediting the tax break with helping to reduce the "glut of homes presently for sale on the market."
Sales to first-time homebuyers have a ripple effect, the groups said, because they allow existing homeowners to relocate or move to a different home,
New-home inventory has fallen to seven months of supply, down from 12.4 months in January, and the months’ supply of resale homes has declined from 10.6 months in November to 8.5 months. A healthy housing market ideally has five to six months’ supply, the groups said.
Ideally, the groups said, the program should not only be extended by at least 12 months, but expanded to include all purchasers of principal residences and the amount of the credit increased. Industry groups would also like homebuyers to be able to apply the credit at closing, and extend the overall program by at least 12 months.
The Obama administration has not come out as for or against an extension of the first-time homebuyer tax credit.
In an Oct. 5 briefing, White House Press Secretary Robert Gibbs said the credit has "helped the economy," and that the administration was discussing the possibility of an extension — along with prolonged jobless benefits and health care subsidies for unemployed workers — with lawmakers.
In his testimony before the committee, Housing Secretary Shaun Donovan said the Obama administration is still analyzing data needed to evaluate the tax credit’s effectiveness, and will be ready to engage in further discussions "within the next few weeks." …CONTINUED
Although prominent Democrats including House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid have voiced their support for an extension of the credit, Isakson appears to be seeking to broaden the base of support by tying his amendment to legislation that would extend unemployment benefits.
Complicating the debate is the revelation that thousands of homeowners are suspected of making fraudulent claims for the credit, an issue to be taken up by the House Ways and Means Oversight Subcommittee Thursday.
The committee will hear what steps should be taken to allow the Internal Revenue Service to "strike a balance between issuing timely refunds of the homebuyer tax credit and protecting federal revenue," Chairman Rep. John Lewis, D-Ga., said in announcing the hearing.
Lewis said the IRS has identified 167 criminal schemes and opened nearly 107,000 civil examinations involving the credit as of Sept. 30.
In announcing its first prosecution related to the credit in July, the IRS claimed to have "a number of sophisticated computer screening tools" to identify tax returns that may contain fraudulent claims for the tax credit (see story ).
But a recent audit report by the Treasury Inspector General for Tax Administration (TIGTA) found the IRS has had difficulty ascertaining whether homebuyers filing legitimate claims purchased their home in 2008 or 2009.
Those who purchased their homes in 2008 will have to repay the credit, while those who purchased this year do not. Congress eliminated the repayment requirement in renewing the program and increasing the maximum amount from $7,500 to $8,000.
The TIGTA audit report found that the tax returns of 93 percent of homebuyers who used an electronic form to claim the first-time homebuyer tax credit were not properly coded to allow IRS computers to determine whether the credit was being claimed for a home purchased in 2008 or 2009.
Taxpayers who e-filed "may be burdened by inaccurate notices and improper collection attempts if the IRS cannot accurately identify which credits must be repaid," the report said.
The IRS says it has records showing the year of purchase and the dollar value of the credit issued to each taxpayer that it will double check before making a decision to pursue a claim.
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