As you may be aware from news reports, a battle is brewing over renewing the $8000 refundable tax credit which became law earlier in the year when ARRA, otherwise known as the economic stimulus package, was passed. The tax credit provision provided that first-time homebuyers who purchase a home between January 1 and December 1 of this year and whose AGI (adjusted gross income) does not exceed $75,000 for a single person or $150,000 for a couple are entitled to an $8000 credit on that purchase, provided that the taxpayer resides in the home for three years as his or her primary residence. It is important to note that "purchase" in this context means transfer of title, which typically occurs on the closing date of the transaction. It does not mean the date on which the contract to purchase is executed. A smaller credit is available to taxpayers with somewhat higher incomes than the limits indicated above. Also, note that the credit is a "refundable" one, which means that if the entire amount is not needed to dispose of a tax liability, the unused portion will be refunded to the taxpayer.

     This program is credited by experts with triggering a lion's share of the 400,000 homes sold to date this year. That, in turn, has triggered much additional activity in this troubled housing market as sellers purchase replacement homes and ancillary goods and services, such as moving costs, furniture purchases and real estate commissions are paid.

     Who can doubt that this program, like the "cash for clunkers" program earlier in the year, has been a resounding success and has made a major contribution to the revival of a moribund housing market. Clearly, howeveer, more needs to be done. House prices continue to fall, foreclosures continue to increase and approximately 1,000,000 homes remain on the market. That this program will be costly in terms of lost tax revenues is undeniable but the need to stabliize house prices and thus contribute significantly to stabilizing the economy are surely objectives whose value justifies this cost.

     Congress needs to know that this program is vital to the recovery of the American economy. It should be extended and also expanded to include all qualifying home purchasers, not just those who are buying homes for the first time.

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