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LAVENDERLAWBLOG POST: FIRST TIME HOMEBUYER TAX CREDIT TO BE EXTENDED . . . . MAYBE

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8000.00 for qualified first-time home buyers purchasing a principal residence. The anticipation of the expiration of this tax credit on November 30, 2009, causing angst among potential home owners, may be for naught.


Lobbyists are pushing and a bill has been filed to extend the tax credit for another year and expand it to all homebuyers and not just first timers. The creation and attempted expansion of the tax credit is done as an effort to prop up a deflating housing market and economy. This has raised mixed responses from members of the financial community. Some see the extension and expansion as vital to the creation of jobs and a more positive momentum of the economy. Others view the tax credit as doing more harm than good. The concern is that the credit costs the government additional money for each first time home buyer who would have bought homes without the credit anyway. It is feared that the expansion of the credit from first time homebuyers to all homebuyers will dramatically increase the cost of each home to the government. Offsetting the cost of the credit by taking back unspent stimulus funds is being considered in contemplation of extending and expanding the tax credit.


Evidence of the likelihood of the extension of the credit is the recent passage of Service Members Home Ownership Tax Act (H.R.3590) by the House of Representatives on October 8, 2009. The bill is also expected to be quickly approved by the Senate and signed into law by the President.


The bill is an effort to prevent military personnel from missing the use of the $8,000.00 First Time Home Buyers Tax Credit due to their service overseas while it was being offered. The bill will extend the credit until November 30, 2010 for members of the service who are eligible and served overseas for at least 90 days during 2009. Intelligence personnel and members of the Foreign Service who have been deployed overseas this year will also be extended the credit. The bill prevents the IRS from recapturing the tax credit where members of the service are required to sell or rent out their houses due to deployment inside the country or out. The current law requires (under the penalty of returning the credit to the IRS) purchasers who do not use their houses as their principal residence for the first thirty-six (36) months of ownership. This provision of the law has caused military and members of the Foreign Service who move around to forego the ability to apply for the tax credit even when they have purchased homes.


All of the civilian “home-owners to be” are holding their breath to see who will win the battle to expand or extend the tax credit. While proponents and opponents of the tax credit extension recognize the necessity of jump starting the economy, the biggest obstacle to the credit is the cost to the consumers of this country. Not only now, but in the future, affecting the lives of our children and their children.


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