More people qualify for home tax break

While extending unemployment benefits this week, Congress also made a few moves its members say are designed to stimulate the housing market. If you're planning to buy a house, this could be good news for you.

Congress took two significant steps that will benefit certain homebuyers:

• Extended the $8,000 tax credit for first-time homebuyers (defined as those who haven’t owned a home in the last three years) through April 30.
• Added a new $6,500 tax credit for people who buy a new home after owning and living in their homes five of the last eight years.

The president is expected to sign the bill, which you can read here. The National Association of Realtors also has put together a helpful chart comparing the new and old tax credit provisions.

Whether the tax credit extension and expansion are good for the economy has been hotly debated. But if you qualify and want to buy a house, it’s a good deal for you.

Previously, first-time home buyers had to have incomes of less than $75,000 ($150,000 for couples). For homes bought after the new legislation takes effect, single people can have incomes up to $125,000 and couples up to $225,000 to get the full credit, with a partial credit for those who make up to $20,000 more. That applies to both new buyers and owners of existing homes who qualify for the $6,500 credit

The credit is actually 10% of the purchase price, up to $8,000 for first-time buyers and $6,500 for those who already own. If the homebuyer doesn’t owe that much in federal income tax, he or she gets a refund.

To be eligible for the tax credits, buyers will have to sign a contract for a home by April 30, 2010, and close by July 1, 2010. For move-up (or move-down) buyers to take advantage of the deal, they must have owned and occupied their homes five consecutive years out of the last eight years.

Congress also made some changes in the tax credit designed to combat fraud.

Will the measure really stimulate the economy? Janet Morrissey of Time.com quoted both proponents and skeptics in advance of Thursday’s House vote.

"Failure to act now could derail the fragile housing recovery even before it has time to take root, " said Jerry Howard, president and chief executive of the National Association of Home Builders, in a recent statement.

"I think they greatly overestimate the beneficial impact of it," Michael Widner, an analyst at Stifel Nicolaus & Co., told Time.  "I think that the people who were going to buy have already been lured in by the tax credit. As we extend it each additional month, you'll get a smaller and smaller effect."

What do you think? Did Congress make the right decision? Have you been or will you be influenced to buy a house by the tax credit? Or is the whole program just a waste of taxpayers' money?

Related reading:

12 must-dos for the first-time homebuyer

Got $2,500? Buy a house

3 bad reasons to buy a home