Tax Edge

By Robert Steere, Toolkit Staff Writer

It all began with the bursting of the housing bubble in 2008. Congress jumped to the rescue of the ailing housing market by offering a generous $7,500 first-time homebuyer tax credit to those brave enough to purchase a new home in 2008 and 2009. The credit served as a loan, to be paid back over several years through adjustments to later tax returns. The credit was available to any first-time homebuyer who met the income eligibility requirements and had not owned a home during the three years preceding the purchase. In early 2009, Congress stepped in again and sweetened the deal, increasing the credit to $8,000, transforming it from a loan into a gift, and extending its availability through November 30, 2009. The credit remained available only to first-time homebuyers meeting the income eligibility requirements.

Now, some lawmakers are hoping to double the amount of the credit, extend its availability into 2010, and expand eligibility for the credit to all homebuyers, not just first-time homebuyers, regardless of income level. New legislation has been introduced by U.S. Sen. Johnny Isakson, R-Ga, and is attracting co-sponsors from both sides of the aisle.

Business and industry groups are strongly supporting this new outpouring of Congressional generosity. The Business Roundtable launched a campaign backing the key elements of the amended homebuyer credit included in the legislation. Not surprisingly, the National Association of Home Builders and the National Association of Realtors are also lobbying for the expanded tax credit.

Under the legislation, any homebuyer, not just a first-time homebuyer, would be eligible for a tax credit based on 10 percent of the purchase price of the home, up to a maximum credit of $15,000. Homebuyers would not be rendered ineligible because of high income, as they are under current law. As with current law, the credit would not have to be paid back in future years unless exceptional circumstances arise. The availability of the credit would be extended to home purchases transacted throughout most of 2010; however, the credit could still be taken on the 2009 income tax return.

Senator Isakson declared his motivation in his press release announcing the legislation. "One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can." In earlier comments, Isakson has said, "By removing the income and first-time buyer restrictions from the current homebuyer tax credit, I am confident many more buyers will take advantage of this tax credit and we will have a significant improvement in the housing market and in our economy." While it is not at all logically apparent that either the government or the taxpayers are obligated to boost a sluggish housing market, Senator Isakson does offer some indisputable logic. If you offer to pay people $15,000 to buy new homes, many will take advantage of it, and more houses will be sold.

Business leaders indicate that the first-time homebuyer credit has given a boost to the low end of the housing market. But they want to see incentives to draw current homeowners back into the market to buy bigger, more expensive homes. As Senator Isakson says, "...we don't have a recession in first-time home buyers. We have a recession in the move-up market." Realtors and builders argue that boosting sales among existing owners as opposed to first-time buyers will spur more sales because each transaction involves two home sales. It's also worth mentioning that the transactions are likely to involve higher-priced homes.

Richard A. Smith, President and CEO of Realogy Corporation (parent corporation of Century 21 and Coldwell Banker) and Chair of the Business Roundtable’s Housing Working Group, said, "We recognize the earlier efforts made by the Administration and Congress, but strongly recommend taking additional steps to jumpstart the lagging housing market in order to stimulate a broader economic recovery. We believe targeted, demand-side solutions – such as the [expanded homebuyer tax credit] - will provide a critical next step for a housing recovery that will help create jobs and boost the economy as a whole."

It is understandable that a career real estate professional like Senator Isakson wants to see his industry thrive. It makes sense, too, that the Home Builders and Realtors want to repair the burst bubble that has been so beneficial to their industry over the years. It is less clear why their motivations should translate into the American people giving a $15,000 gift to anyone who stands ready to purchase their dream home. The enthusiasm of home builders, realtors, and the buyers and sellers of homes must be tempered by the reality that the rest of the American people must pay for the very targeted generosity of the government.

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Posted June 25, 2009.