Senate votes 98-0 to Extend and Gradually Reduce Home Buyer Credit in 2010

Senate leaders have overwhelmingly agreed to extend and gradually reduce the $8,000 first home buyer tax credit through 2010. Deliberations will now move to the House of Representatives. Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the home buyers extension to legislation extending unemployment benefits that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid. More than 1.2 million borrowers through Oct. 9 have claimed almost $8.5 billion of the $13.6 billion set aside for "first-time" home buyer tax credits this year. The program is aimed at easing the worst housing slump since the Great Depression and has been credited with boosting the economy and stock markets over summer. See the previous update below for the various bills under consideration to extend this tax credit.

Lawmakers are under pressure from real estate agents, mortgage brokers and homebuilders to extend the $8,000 credit before it expires Nov. 30. However, they are also facing pressure from governance groups and recent IRS reports claiming widespread fraud around claims for this lucrative credit. The Internal Revenue Service has identified 73,799 claims totaling almost $504 million that may not be from first-time homebuyers. They also found that 582 taxpayers under 18 years old and ineligible to buy a home claimed almost $4 million in credits. Children as young as 4 years old received the credit, Treasury Inspector General for Tax Administration J. Russell George told a House panel.

The bill to extend the credit contains the following provisions:

- First-time home buyers who close before April 1 would get the full $8,000, and the credit's value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

- The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

- Existing Homeowners could qualify for a $6,500 credit if they have lived in their primary residence for five years

- The homebuyers' credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

"Relative to current law, this is better. But it's worse than people are expecting," said Tom Gallagher, head of policy research in the Washington offices of International Strategy and Investment Group, an independent research firm. "This is a four-month extension and a nine-month phase-out."

The proposal was intended to counter one by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Senator Johnny Isakson, a Georgia Republican and former real estate agent, to extend the full $8,000 credit through next June and to expand it to all couples earning $300,000 or less. The Baucus-Reid proposal would continue limiting the benefit to first-time homebuyers, Lachapelle said.

The terms for extending the homebuyer tax credit are still being negotiated. House Speaker Nancy Pelosi, a California Democrat, is waiting to see the final Senate agreement before deciding whether to support it. "Generally, we do support extending it," Pelosi spokesman Nedeam Elshami said. "But it's premature to say anything until we see what action the Senate takes."