Why the First Time Homebuyer's Tax Credit will be Extended (or why it won't)

As anyone buying or selling a home knows, the government will give you a tax credit of 10 percent of the home's purchase price up to $8,000, provided neither you nor your spouse has owned a home in the past three years. Your new digs have to be your primary residence for three years, and you can't make more than $75,000 a year (double that if there's two of you).

This incentive was launched by the government earlier this year and is set to expire Nov. 30. But if the real estate and construction industries have their way, the program will go on life support until at least next year and perhaps indefinitely. Several members of Congress have drafted or voiced support for bills calling for extensions or expansions of the initiative. One version, introduced in the Senate by Georgia Republican John Isakson, would extend the program through 2010, raise the credit to $15,000, and be available to all homebuyers, regardless of current housing status or income level. Senate Banking Committee Chairman Christopher Dodd has voiced his support, as has Senate Majority Leader Harry Reid. (It’s worth noting that Reid hails from Nevada, a state that’s been especially hard hit by the real estate crisis.)

Critics say this has artificially inflated home sales. By the National Association of Realtors numbers, of the roughly 1.5mil homes sold nationwide since the inception of the credit, 350,000 of them were purchased using the tax credit. Yet that's only part of the story. Those 350,000 homebuyers allowed at least another 350,000 homesellers to move up into another home. This is a very good thing.

Mark my words, if legislation is passed extending this credit to all buyers there will be massive rush to purchase real estate. Homeowners who have been on the fence about selling will rush to the market,and the true recovery can begin.

When housing leads you into a recession, it can also lead you into recovery. Let's hope the legislators can see the light and extend the First Time Homebuyer's Tax Credit, and extend it to all homebuyers.

The Friendly Real Estate Broker loves real estate questions and challenges from the public. Baseball trivia is welcome also.