A tax credit that helped prop up the housing market in the wake of the 2008 mortgage crisis could be set for a comeback.
Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, introduced legislation Wednesday to provide first-time homebuyers with a $10,000 refundable tax credit. The credit would be equal to 2.5 percent of the purchase price of a first-time home, with the maximum credit reached for homes selling for $400,000.
The refundable tax credit was originally available for homes purchased after April 8, 2008, and before July 1, 2009 for 10 percent, up to a maximum of $7,500, as part of the Housing and Economic Recovery Act of 2008. The credit was later extended twice by Congress for homes purchased in 2009 and 2010, with the maximum amount of the credit increasing to $8,000.
Wyden hopes to re-introduce the tax credit with the goal of helping middle-class Americans find a solid footing in the housing market. The reinvigorated housing market has put housing prices out of reach of many middle-class homebuyers in parts of the country.
The credit would phase out for individuals with incomes above $80,000, and married couples above $160,000. Those who claim the credit who sell their new home within five years would have to pay back part of the credit, except under special circumstances, such as job relocation or military deployment.
“Our country’s housing policy needs a remodel,” Wyden said in a statement. “We have too many people working hard to support their families who can’t afford rent much less even think about buying their first home. The federal government needs to do more to repair the housing crisis at all levels, working closely with state and local governments. That includes making sure we are adequately funding effective programs to help people experiencing homelessness, getting low-income families access to quality housing, and making sure middle class Americans can afford rent or their first home.”
If the legislation passes, the IRS would likely need to ensure the tax credit isn’t abused by fraudsters or people who miscalculated the credit, or who weren’t buying their first home. The original credit was fraught with erroneous claims, and Congress had to add antifraud protections to the final extension of the tax break. A report in 2012 by the Treasury Inspector General for Tax Administration found the Internal Revenue Service disallowed nearly $1.6 billion in erroneous claims but said there was likely much more fraud that could have been caught if the IRS had been given expanded math error authority from Congress (see IRS Caught $1.6B in Erroneous Homebuyer Tax Credits).
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