Home Buyer Tax Credit

The Senate recently voted this week to replace the $7,500 tax credit for first-time home buyers and builders who earned less than $150,000 with a $15,000 break for all income groups as part of the economic stimulus package. It’s an effort by senators to effectively encouraging purchases by higher-income households with a reduced risk of default. 

Unlike the current law, the $35.5 billion provision wouldn’t be restricted to first-time homebuyers or have to paid back over.  It also would end homebuyers’ ability to claim the full credit if it exceeds the amount they owe in taxes.

 The effect would be to wipe out the $15,000 income tax a family of four earning about $122,000 would otherwise owe this year if they bought a house. A family earning half that amount would get about $2,300 less in tax benefits for buying a home than they would under current law.

Lower-income people whose taxes over two years don’t total $15,000 won’t get the full benefit and in many cases would get a better deal under current law, which requires the government to send a check for the difference between taxes paid and the $7,500 credit.

Under existing law, the $7,500 has to be repaid. The Senate bill wouldn’t require the $15,000 credit to be repaid. In its version of the economic stimulus bill, the House agreed only to waive the repayment requirements, though it left the refundable credit at $7,500 and preserved income limits for eligible users.

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