Sen. Johnny Isakson — the Georgia Republican whose previous attempt to boost the first-time homebuyer tax credit to $15,000 was shot down in the House — hasn’t given up on the idea.
Isakson, the former president of Northside Realty, has introduced a bill that would not only raise the tax credit’s current $8,000 cap but make it available on any purchase of a primary residence — not just to first-time homebuyers. The bill, S.1230, would also eliminate the current income ceilings of $75,000 for individuals and $150,000 for couples.
In a press release, Isakson claimed bipartisan support for the bill. Although Sen. Chris Dodd, D-Conn., was the only Democrat named among the nine co-sponsors, Dodd carries considerable weight as chairman of the Senate Banking Committee.
The Senate got behind a previous Isakson amendment that would have expanded the tax credit as part of the economic stimulus bill passed in February. But the amendment was stripped from the bill before it was approved by the House.
As originally enacted by Congress in 2008, the tax credit was equal to 10 percent of the purchase price of a primary residence, maxing out at $7,500. Last year, the credit functioned more like an interest-free loan, since it had to be repaid over a 15-year period.
Although the Isakson amendment was stripped from the bill, The American Recovery and Reinvestment Act of 2009 did raise the cap from $7,500 to $8,000 for homes purchased before Dec. 1 of this year, and eliminated the repayment requirement unless a home is resold within three years.
A preliminary review of tax returns suggests as many as 1.4 million homebuyers claimed the first-time homebuyer tax credit on their 2008 tax returns, putting it in on track to reach a target of helping 2 million borrowers by the time the tax credit expires on Nov. 30 (see story).
In addition to expanding the tax credit, Isakson’s bill would extend its availability for one year from the date of enactment, and allow homebuyers to claim it on their 2009 tax return for purchases made next year.
The tax credit has made a difference, Isakson said. But allowing all buyers of primary residences to claim it — not just first-time homebuyers — would help existing homeowners trade up, he said.
“First-time homebuyers used it and the market stabilized, but we don’t have a recession in first-time homebuyers. We have a recession in the move-up market,” Isakson said in a statement.
Expanding the tax credit is one of five recommendations put forward by a Housing Working Group made up of members of The Business Roundtable, an association of chief executive officers of large U.S. companies.
The Housing Working Group, chaired by Richard A. Smith, president and chief executive officer of Realogy Corp., is also urging the government to take additional steps to keep mortgage rates “at historically low levels for at least one year” and to make permanent increases in the conforming-loan limit in high-cost housing markets.
The National Association of Realtors said it backs the working group’s recommendations.
“NAR has called on Congress and the Obama administration to expand the first-time homebuyer tax credit to all homebuyers, regardless of income,” NAR said in a statement. “In addition, it is imperative to maintain mortgage interest rates below 5 percent, make the loan limit increases permanent, and strengthen foreclosure mitigation and loan modification efforts.”
The Federal Housing Administration last month issued guidelines for applying the tax credit toward the down payment and closing costs on the purchase of a home with an FHA-backed mortgage. The tax credit can’t be used to meet the FHA’s 3.5 percent minimum down-payment requirement, except by borrowers tapping down-payment assistance loans offered by some state housing finance agencie.
The IRS has published a Q-and-A on the tax credit and the document used to claim it, Form 5405, on a dedicated landing page.