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Can Sen. Johnny Isakson Save The $8,000 Tax Credit?

The good news in the real estate market (or what's passing for good news lately) seems to be working against Sen. Johnny Isakson's (R-Ga) quest to extend and expand the $8,000 first time home buyer tax credit.
Let's start with a short review of where we've been:

  • In 2008, Congress passed a $7,500 tax credit that essentially worked as a zero-interest loan - you'd have to pay back the $7,500 in $500 per year installments, or all at once if you sold your home before the tax credit was paid back.
  • For 2009, Congress passed an $8,000 tax credit (10 percent of the purchase price to $80,000) for first time home buyers who earned $75,000 ($150,000 if married). To get the $8,000, you had to file an amended 2008 return or wait until you file your 2009 tax return in 2010. (Check out the IRS tax credit cheat sheet for detailed rules.)
  • Some states added in their own state tax credits and incentives, some of which were for any home buyer, not just first time home buyers.
  • Real estate experts began realizing that since the $8,000 wouldn't come in until tax returns were filed, it wouldn't help the economy as much as everyone hoped. Some states instituted second loans that would allow home buyers to tap into the $8,000 instantly. (Think of these as much-despised - and hugely profitable - Refund Anticipation Loans, but with not quite such draconian interest rates.)
  • As we moved into Spring, it became clear that the first time home buyer tax credit was working with more than 350,000 first time home buyers taking advantage of the tax credit. It seemed as if real estate was beginning to form a bottom. Sen. Isakson proposed a $15,000 tax credit for everyone, even millionaires in June, and started gathering bipartisan support.
  • But as the real estate market strengthened, some members of Congress felt that spending billions of dollars to extend or expand the tax credit might not be such a good idea. Their constituents have been pretty adamant about not spending any more than the $5 trillion the government has already spent on saving the economy.
  • By the end of September, it became clear that a $15,000 tax credit for everyone, wasn't going to fly. Fretting that the health care discussions had "sucked all the oxygen out of the room," Sen. Isakson proposed a $10,000 tax credit for all home buyers.
Which brings us to yesterday, when Sen. Isakson took to the Senate floor to discuss his latest proposal to save the $8,000 tax credit. He held out 74 pages from the Marietta Journal of legal notices announcing the foreclosure of 1,157 homes in a county of 700,000 residents. He said:

Houses continue to decline in their value because the market demand is down. The foreclosures we see today are not subprime loans; they were the loans that were foreclosed on a year or a year and a half ago. When we read the addresses of these 1,157, which I won't do, they are the addresses of mainstream America and the mortgages that are being foreclosed on are what are called conventional loans that were made to people who had jobs, had income sufficient to make the payments, and had down payments of 5, 10, or 20 percent. These are the good loans a year ago that today are the loans being foreclosed on. In my State, 1 out of every 13 houses shows mortgage holders right now behind in their payments. Foreclosures are at record rates.

The first-time home buyer tax credit is about to expire. What does that have to do with this foreclosure problem we have and the problem of declining values of houses and shrinking equities for the American people? It has everything to do with it. We have a great demonstration project in the first-time home buyer tax credit that shows this Congress the way to continue and get a recovery in our housing market. In the time the first-time home buyer tax credit has been in effect, it is estimated that 350,000 home sales were made. That is 357,000 sales that would not have taken place.

At the end of his speech, Sen. Isakson proposed extending the deadline for the existing $8,000 tax credit from November 30, 2009 until June 30, 2010 to help prop up the real estate market through the coming winter months, typically the slowest selling season of the year. He also proposed expanding the current tax credit from first-time home buyers to all home buyers, provided that they do not earn more than $150,000 as individuals (up to $300,000 married, filing jointly).

The total cost: an estimated $16.7 billion.

According to his office, Sen. Isakson is planning to submit his proposal as an amendment to the Senate's unemployment benefits extension bill (S.1699), the companion to the recently passed HR 3548, The Unemployment Compensation Extension Act of 2009.

The real question is this: Has Sen. Johnny Isakson finally hit upon a formula that will extend and slightly expand the $8,000 tax credit?

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