The looming expiration is generating debate in Congress whether to extend the life of the credit.  The real estate and mortgage loan industries are lobbying hard for an extension of the highly successful program.

Why extend the tax credit program?

Proponents of the extension point to how the tax credit has been stimulating the real estate market.  The New York Times in an article published today cites analysts’ estimates that the credit has generated 100,000s of home sales that would not have taken place had the credit not existed.

These sales helped stabilize the real estate market earlier this year at a time of crisis when fears of a new economic depression were widespread and highly creditable.

The New York Times article estimates the tax credit’s cost to the Federal Treasury at $15 billion to date.  This seems relatively modest given the overall size of the nearly $1 trillion stimulus spending plan passed by Congress last February.

350,000 – 400,000 additional home sales

That $15 billion seems money well spent; the tax credit certainly has had a big impact on the national housing market:

 “The National Association of Realtors estimates that about 350,000 sales this year would not have happened without the lure of the tax credit. Moody’s Economy.com used computer modeling to put the number at 400,000,” quoting from the New York Times article.

In Massachusetts, I have seen many home buyers active in the market because of the credit.  Interest in starter homes is bordering on the frantic as the expiration for the credit draws near.

Spillover benefits

The Times article demonstrates an additional spillover benefit of the tax credit: the article recounts how the Meyers family purchased a condo, got the tax credit money, and used the funds to purchase a number of pieces of furniture and appliance items.

“We did exactly what the government wanted us to do,” Ms. Meyers was quoted in the article. “We stimulated the economy.”

$50 billion to $100 billion expansion of credit program?

There’s even talk by lobbyists of getting Congress to increase the tax credit to $15,000 and expanding it to cover all buyers, not just first time buyers.

This would be a major financial undertaking.  The Times article quotes experts who estimate the cost of extending and expanding the tax credit at between $50 billion to $100 billion. 

Note that money would be borrowed by the Federal government, adding to the large deficit we are piling up.  On the other hand, an expanded credit available to all home buyers might help bolster sales of trade-up homes in hard-hit markets across the US.

One possible solution

Extending the life of the first time home buyer tax credit as currently structured would seem a no-brainer and should quickly be done by Congress.

However, greatly expanding the tax credit to apply to all home buyers as some lobbying groups seem to want could be very expensive.  Perhaps that should be done but only if a firm time limit to such an expanded credit is imposed.

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There’s bound to be a lot of hits within those results concerning other tax-related content.  But even if only a small fraction of those search results actually concern the newly enacted $8000 tax credit for first time home buyers, you should be able to easily access any number of comprehensive and detailed reviews of this sure-to-be popular aspect of the Federal stimulus package.

As of today, there already is an authoritative site that provides what seems to be reliable information on the tax credit:

Please confirm what you read on that site with your tax adviser.

Here’s a very brief overview of some aspects of the credit; the following is a cursory treatment that glosses over a lot of details, so please consult a tax professional before making any purchase decisions:

• A one-time tax credit (not just a mere deduction) of up to $8000 is available to first time home buyers for a limited time.  To qualify for the credit, you must take title to the property no earlier than January 1, 2009 and no later than November 30, 2009.

• The actual credit is the lesser of $8,000 or 10% of the value of the home being bought.  So if you buy a condo unit for $70,000, your tax credit would be $7,000.

• You are defined as a “first time buyer” if you (and your spouse) have not owned a home at any time over the three years prior to the purchase. 

• The home must be occupied by you as your principal residence.

• There are several provisions regarding income, so examine these carefully.  Briefly, singles must earn an annual income of less than $75,000; for couples, the income limit is $150,000.  There are partial credits for higher-income earners.

We’ll see in the coming months how much of a stimulative effect this tax credit has on the Massachusetts housing market. 

Homes in most price ranges in the regional market surrounding Franklin, MA seem to be getting showings and homes are selling.  However, this tax credit would seem to be a very good incentive to get hesitant first time buyers to make that important first home purchase in 2009!