Kenneth Harney
The Nation's Housing

New Life for the First-Time Credit?

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By Kenneth R. Harney
Saturday, September 26, 2009

Will Congress extend the wildly popular $8,000 home-buyer tax credit beyond its Nov. 30 expiration date?

That's a question generating huge pressure on Capitol Hill from would-be buyers who haven't found the right house, realty agents, builders, lenders and squads of lobbyists working on their behalf.

Here's the first hint of an answer: On Sept. 17, the leadership of Congress's primary tax-writing committee introduced a tax credit bill that's likely to zip through the House and quickly move to the Senate. House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) sponsored the bipartisan Service Members Homeownership Tax Act (H.R. 3590), which would extend the credit 12 months for thousands of military, Foreign Service and intelligence agency personnel who have been posted abroad in 2009.

Rangel's bill, with 29 co-sponsors, would keep the credit alive through Nov. 30, 2010, for service members who had at least 90 days of overseas duty assignments in 2009 and who otherwise meet the eligibility tests for the credit. The bill would also prohibit the Internal Revenue Service from "recapturing" the $8,000 credit when service members are forced to sell or rent out their houses because they are ordered to deploy to a different duty station.

Under the rules of the program, buyers who obtain the credit must use their houses as a principal residence for 36 months or repay the credit to the IRS. As a result of the 36-month rule, many military and diplomatic employees have been hesitant to buy a house and claim the credit, or are worried that their absence from the country could force them to repay the money.

For example, the spouse of a Foreign Service officer posted to the Philippines this summer for a two-year assignment wrote to Rep. Earl Blumenauer (D-Ore.) to alert him to a flaw in the tax-credit program. The Oregon couple bought their first home earlier this year, encouraged by affordable prices and the $8,000 credit. But having now been posted abroad, they cannot claim to occupy the house as their principal residence. Under current rules, they even face recapture of the full credit.

Blumenauer, who is a member of the Ways and Means Committee, said, "It is absurd that thousands of Americans serving our country, away from friends and family, must choose between their service work and homeownership." He wrote corrective legislative language that ultimately was incorporated into Rangel's tax bill.

Though nothing is guaranteed on Capitol Hill, legislation eliminating tax penalties on the military during wartime looks like a good bet for early passage in both houses. Equally significant: It now appears likely that there will be an $8,000 tax credit available a year from now -- at least for some purchasers. That raises the question: Why not leave it in place for all first-time buyers?

There's growing support for that on both sides of the Capitol, but there are also some complicating issues. In the Senate, the most outspoken advocate for months has been a Republican, Sen. Johnny Isakson of Georgia, a former real estate broker. He wants not only to extend the credit to Dec. 1, 2010, but to raise the maximum to $15,000, and make it available to all home buyers next year.

But recently, key Senate Democrats produced their own version of an extension, limited to six months, retaining the ceiling at $8,000 and targeting only first-time purchasers. The bill's primary sponsor is Sen. Benjamin Cardin (D-Md.). Democratic co-sponsors include Majority Leader Harry M. Reid of Nevada and Debbie Stabenow of Michigan. Republicans John Ensign of Nevada and Isakson have signed on as well.

In a statement, Cardin raised what may prove to be the crucial issue affecting the scope and duration of any credit extension: cost. "A six-month extension is a fiscally responsible way to provide adequate time to nudge even more prospective homebuyers off the sidelines," he said.

Estimates of the revenue costs of the current credit vary widely, from $3 billion to $8 billion and higher. How do you pay for any extension without worsening the budget deficit? The new Rangel bill includes an answer: You raise taxes somewhere else -- you "pay as you go." The Rangel bill pays for most of the service members' credit extension by increasing IRS penalties on taxpayers who fail to file partnership or "S" corporation returns.

This would raise an estimated $327 million over the next 10 years. Where and how to raise taxes to cover the far larger cost of a six-month or 12-month extension of the current tax credit could prove much more controversial.

Kenneth R. Harney's e-mail address is kenharney@earthlink.net.


© 2009 The Washington Post Company

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