By Robert Steere, Toolkit Staff Writer

You can ignore the warnings that you've been hearing recently that the first-time homebuyer tax credit is about to expire. You no longer need to rush out and close that deal for a new home by November 30, 2009. The homebuyer tax credit is alive and well--in fact, better than ever!

With the backdrop of a weak economy (and pressure from the homebuilding and real estate industries), Congress could not resist the temptation to extend its generosity to homebuyers. As a result, Congress has enacted a law not only to extend the expiration date of the homebuyer tax credit through April 2010, but to expand its availability to a whole new set of potential homebuyers. The Senate sent the measure to the House for final enactment following a unanimous, bipartisan 98-0 vote on November 4. The House vote followed quickly, on November 5, with similar resounding bipartisan support in a 403-12 vote. The President signed the measure on November 6. Costs for the new extension/expansion of the credit are estimated at $12.5 billion during the first two years, with partially offsetting revenue increases of $2 billion over the next eight years.

Under the provisions of HR 3548, first-time homebuyers will continue to be eligible for the 10 percent tax credit of up to $8,000 on the purchase of a principal residence through April 30, 2010. The tax credit was previously scheduled to expire on November 30, 2009, so the new law revives the credit for an extra five months. It also provides that if a binding written contract for purchase is entered into by the deadline, the homebuyer can have until June 30, 2010 to complete the purchase transaction.

In addition to the time extension, Congress added a few enhancements to the tax credit. Most significantly, the measure extends eligibility for the tax credit (limited to a maximum amount of $6,500) to current homeowners who purchase a new principal residence. To be eligible, the homeowner must have owned and lived in their current home for five consecutive years in the time leading up to the purchase of the new home.

The new law also eases the income limits for tax credit eligibility. Under the new law, the tax credit phases out between income levels of $125,000 and $145,000 for individuals and $225,000 and $245,000 for joint filers. Under the prior law, the tax credit phased out between income levels of $75,000 and $95,000 for individuals and $150,000 and $170,000 for joint filers.

Some limitations have also been added to the tax credit eligibility standards. The credit can now be claimed only on a home that is purchased for $800,000 or less. The homebuyer claiming the credit must be at least 18 years of age. Some home purchases from related persons will not qualify for the credit. The credit can not be claimed by a taxpayer who is a dependent of another taxpayer. And no credit will be allowed by IRS without a properly executed settlement statement to document the purchase attached to the tax return on which the credit is claimed.

Congress first enacted the homebuyer tax credit in 2008 as a form of loan from the IRS that would have to be paid back through supplemental tax payments over 15 years in the future. It extended the credit through November 2009 as part of the economic stimulus plan in February of 2009, increasing the maximum credit to $8,000 and eliminating the payback requirement.

By September 2009, more than 1.4 million borrowers have claimed the credit, at a cost of almost $10 billion, according to a recent IRS report. Estimates of the costs resulting from this new extension/expansion of the tax credit top $12 billion during 2010 and 2011.

As a refundable credit, taxpayers can receive refund checks for the credit, even if they have no income tax liability to offset. Government inspectors suspect tens of thousands of credits have been claimed improperly by taxpayers who were not truly eligible. An IRS spokesman confirmed that, as of September 30, 2009, the Service has opened 107,000 civil tax cases involving the credit. Also as of September 30, 2009, the IRS identified 167 criminal schemes involving the credit.

Also included in the legislation is Congress' extension of 14 additional weeks of Emergency Unemployment Compensation (EUC) benefits--20 weeks in high-unemployment states--at a cost of $2.4 billion. It also includes a provision to allow businesses with a net operating loss (NOL) in a tax year beginning or ending in either 2008 or 2009 to elect to carry back the NOL for up to five years. This is an extension and expansion of a special rule enacted as part of the 2009 stimulus package that was applicable only to small businesses. It allows businesses to claim refunds from the IRS for prior years' tax payments, which they can then invest in their ongoing business operations. Estimates of the first year cost of this provision total $33 billion, partially offset by increased revenues of $22.5 billion over the following 9 years.

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Posted November 6, 2009.