Wednesday, October 28, 2009

Straits Times: US may extend tax break for home buyers

28 Oct, 2009
US may extend tax break for home buyers
$11,000 tax credit for first-time buyers has helped market recovery

WASHINGTON: The United States Senate could vote to extend a popular tax break for home buyers that has helped lift the housing market out of its worst slump since the Great Depression.

Senate Majority Leader Harry Reid, speaking on the Senate floor on Monday, listed the first-time home buyers' tax credit among proposed amendments he would like to attach to an unemployment insurance Bill.

The US$8,000 (S$11,000) credit has brought new buyers into the housing market, helping prices to rise starting in May after a serious buying drought that, along with high unemployment, has wreaked havoc on the economy.

Housing has become such a hot button issue that investors sold off US stocks and pushed the US dollar sharply higher on Monday after a misleading media headline said research firm ISI Group had written the tax credit probably would not be extended when it expires on Nov 30.

Markets partially recovered after Florida Senator Bill Nelson said he expected an extension of the tax credit would pass later this week and the headline was corrected.

Under Mr Reid's plan, the US$8,000 tax credit would be phased out over time, dropping to US$6,000 next April, US$4,000 in July, and US$2,000 in October, before expiring at the end of next year.

The tax credit was approved in February last year and about 1.5 million tax returns filed with the Internal Revenue Service have claimed the credit at a cost to the government of US$10 billion, according to officials.

Mr Reid's offer is a counter-proposal to Senator Johnny Isakson, who wants to extend the US$8,000 tax credit through June and expand it to all buyers of homes that will be a primary residence.

Mr Isakson, a former real estate agent, would also raise the income limit of eligible home buyers to US$300,000 per family from the current US$150,000 limit.

The US real estate and home-building industry is lobbying Congress to extend the tax credit although critics say it gives cash to many buyers who would have purchased a home without the benefit.

The White House has also raised concerns about the cost of expanding the credit.

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