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More time for first-time home buyers to cash in on tax credit

This article first appeared in the St. Louis Beacon, Nov. 9, 2009 - Perhaps lost in the glut of political news late last week is that Congress passed and President Obama signed an extension of the $8,000 tax credit for first-time home buyers. The move came as lawmakers also approved an extension of federal jobless benefits.

The home buyers’ credit, which has proved immensely popular with young people looking to find their first home, was set to expire Dec. 1 and now will run through the end of June. To be eligible, buyers must sign a housing contract on a principal residence before April 30 and close by June 30. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. 

First-time buyers – defined as people who haven’t owned a home in the past three years – are still able to receive the $8,000 credit. What’s new is a $6,500 credit offer for existing homeowners who sell their property and buy another one by the end of spring. They must have lived in the same principal residence for any five consecutive-year period during the eight-year period that ended on the date the replacement home is bought.

The other major change is that the income limits have been raised so that single home buyers who earn up to $125,000 and a married couple earning up to $225,000 can still qualify for the full benefit.

The tax-credit program was part of broad housing rescue legislation passed by Congress last year. The American Recovery and Reinvestment Act of 2009 authorized the tax credit of 10 percent of a home’s purchase price up to a maximum of $8,000.

The housing industry lobbied hard for the extension, with some calling for another full year of the program and an increase in the credit awards. The National Association of Realtors estimates that the tax credit has accounted for well more than 350,000 sales this year that would otherwise not have occurred. The IRS has reported that more than 1.4 million people have taken advantage of the tax benefit.

Many analysts said the tax credit extension is necessary to keep home sales moving. Jack Strauss, an economics professor at Saint Louis University and director of the Simon Center for Regional Economic Forecasting, told me last month that he thought a six-month extention would help prevent a backslide in the market.

But some people have been critical of the program, saying much of the money is going to those who were already planning to buy a home, and that many of the home sales are due to low prices and low interest rates, and not necessarily the tax credit.  

And the program hasn’t gone off without a glitch, either. The Internal Revenue Service has identified a bevy of suspected criminal schemes and civil violations. The U.S. Department of the Treasury has found cases in which claimants pretended to be first-time buyers, the New York Times recently reported.