Senate leaders released more details about their compromise on the home buyer tax credit today. Among other things, the deal would give the IRS more authority to spot cheaters in advance and set an $800,000 price limit on all homes eligible for the credit.
The existing $8,000 tax credit for first-time home buyers (meaning those who have not owned a home in the previous three years) expires after Nov. 30.
The compromise would extend the existing credit and create a new $6,500 credit for move-up buyers. Both types of buyers must sign a binding contract to purchase a new or existing primary residence between December 1, 2009 and April 30, 2010. Buyers would have until June 30 to close the deal.
Move-up buyers will be eligible if the home they are leaving has been their principal residence for five years or more.
The cost of the newly purchased home may not exceed $800,000 for new or move-up buyers. There is no partial credit for homes over $800,000, said Sen. Johnny Isakson, R-Ga.
The income limits for all buyers would rise to $125,000 for single returns and $225,000 for joint returns, up from $75,000 and $150,000 respectively, under the current program.
I asked Isakson, one of the sponsors of the credit extension, whether $6,500 will motivate existing homeowners to go to the time and expense of buying a new home or whether it will simply reward people who would have moved anyway.
His answer: “We’ll find out.”
I also asked him what the rationale is for the move-up credit, since a move-up buyer purchases one home but vacates another, doing nothing to mop up excess inventory.
“The problem is not inventory,” said Isakson, a former real estate executive. “It’s that buyers are sitting on the sidelines.”
The move-up credit “makes two sales where there was none,” creating a “tremendous economic effect,” he said. “The timber, carpet, appliance industry, all of those people are affected when you have some vitality and robustness come back to the real estate market.”
Under the compromise, which Isakson said is being added as an amendement to a Senate bill extending unemployment insurance, buyers who purchase a qualifying home in 2010 would be able to claim the credit on their 2009 income tax return.
Home buyers would not have to repay the credit as long as they live in the home as their principal residence for at least 36 months. There is an exception to this rule for members of the Armed Forces, military intelligence or Foreign Service who are on qualified official extended duty. In addition, military personnel who have been deployed overseas for 90 days or more in 2008 or 2009 would have until April 30, 2011, to claim the home buyer tax credit.
The compromise also includes anti-fraud language that gives the Internal Revenue Service authority to do greater oversight during the processing of the return rather than waiting for an audit. The amendment requires the taxpayer claiming the credit to be 18 or older and requires a HUD-1 settlement statement to be attached when claiming the credit.
Those new rules are designed to crack down on what appears to be fairly common abuse of the tax credit. To claim the existing credit, taxpayers must fill out an IRS form and attach it to their tax returns, but do not have to provide any documentation proving they really bought a home or met other rules.
In a recent report, the Treasury Inspector General for Tax Administration said the IRS lacks some “key controls” to “prevent an individual from erroneously or fraudulently claiming the credit.” It found 19,351 electronically filed 2008 tax returns that claimed credits for homes that had not yet been purchased. It also found 73,799 taxpayers who claimed the credit who appeared to have owned ownes within the last three years, in violation of the rules. It also found 582 taxpayers younger than 18 receiving the credit, with the youngest being 4 years old. Contract law generally prevents children younger than 18 from being bound by a contract.
Isakson said the full Senate will probably vote on the unemployment extension bill, which includes the home buyer credit, next week. If it is approved, it will move to the Assembly, which “could agree to the amendment or disagree and send it to a conference committee.”
October 29 2009 at 01:50 PM|