$15,000 for Homebuyers

NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.

The Senate's version of the plan sweetened the $7,500 homebuyer tax credit provision proposed by the House, doubling it to $15,000 or 10% of the home's purchase price (whichever is lower). What's more, the credit applies to all buyers - not just those purchasing their first homes.

The Senate credit also has no income limits. The House version, in comparison, allows only those with incomes up to $75,000 for singles and $150,000 for couples to qualify for the full amount. (In that bill, those earning up to $95,000 and $170,000, respectively, can qualify for a partial credit.)

Also, unlike the tax credit passed last summer as part of the Housing Recovery Act, this one does not have to be repaid. The old credit acted more like a no-interest loan than a true credit and, as a result, had little impact on home sales.

"This will bring pent-up demand back into the marketplace," said Jerry Howard, president of the National Association of Homebuilders. "We believe you can't effectively stimulate the economy until you find a way to stop the downward movement of home values."

The National Association of Realtors estimated the Senate measure will attract an additional one million buyers who would otherwise have remained on the sidelines. "Consumers will view the tax credit as they do lower home prices," said Lawrence Yun, NAR's chief economist. "And more people will qualify [for buying homes]."

That, combined with low mortgage rates, could help reverse the sentiment of many potential homebuyers who are waiting for prices to fall further before they act.

"Consumers are saying, 'Why buy now?' With money on the table, more would jump at the opportunity," said Yun.

The differences

The Senate tax credit, unlike the House proposal, is also non-refundable. That means, if your tax obligation is less than the credit, you only receive an amount equal to your tax bill, no more. The average taxpayer pays considerably less than $15,000 a year in federal income taxes and so would not qualify for the entire credit. For example, if your total tax bill is $8,000, your debt would be zeroed out, but you wouldn't receive the remaining $7,000 as a refund.

But homebuyers can take the credit spread out over two tax years. So in the above example, the taxpayer could claim the remaining $7,000 on next year's taxes.

Another difference is that the Senate credit is good for one year following its enactment and is not retroactive. Homebuyers who make purchases before the credit takes effect cannot claim it; under the House bill, they can because the credit is retroactive to the start of 2009 and expires at the end of June. In both bills, buyers must live in the home for two years or forfeit the credit.

Limited stimulus

Still, many critics doubt that the credit will have as deep of an impact as Yun and Howard predict - and some have been scathing in their critiques. "This is the biggest, most hare-brained scheme," said Dean Baker, the co-director of the Center for Economic and Policy Research. "If this passes, I'll be amazed."

One major objection is that the credit is available to existing homeowners, who would essentially be selling house A to buy house B and thus have no stimulus impact on the economy. Baker called it a "house-flipping subsidy."

Plus, he added, it gives a credit to others who would buy anyway.

"I actually like this bill," Baker said sarcastically, "because, with home prices in Washington plummeting, I'm considering buying a house."

He also raised the possibility that it could be gamed: What's to prevent two people from selling their houses to each other, in name only, just to claim the $15,000 each?

The Tax Policy Center gave the credit a mediocre C+ grade in its Tax Stimulus Report Card.

TPC spokesman Bob Williams agrees that the credit is poorly targeted and does nothing to address the issue that's holding most buyers back: suspicion that prices will keep falling.

"As long as people are uncertain about what markets are going to do, this won't help much," he said. "It's not enough to change that."

If approved, applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. It can be claimed on 2008 returns; taxpayers who have already completed their returns can file amended returns for 2008 that claim the credit.

Once the Senate passes its stimulus bill, which is expected to happen on Tuesday, a committee will meet with House members to reconcile the differences between the two bills.

Jaret Seiberg, who has been analyzing the stimulus package for the Stanford Group, said the odds favor the Senate provisions because they enjoy broad support among lenders, home builders and lawmakers.

"You have to have something in the stimulus bill to help housing, and there's very little else in there that's on point," said Seiberg.