Senate to vote on home buy credit extension

WASHINGTON (Reuters) - The U.S. Senate could vote on Tuesday to extend a popular tax break for home buyers that has helped lift the housing market out of its worst slump since the Great Depression.

A for sale sign sits outside of a house in Miami Beach October 22, 2009. REUTERS/Carlos Barria

Senate Majority Leader Harry Reid, speaking on the Senate floor on Monday, listed the first-time home buyers tax credit among proposed amendments he would like to attach to an unemployment insurance bill.

The $8,000 credit has brought new buyers into the housing market, helping prices to rise starting in May after a serious buying drought that, along with high unemployment, has caused havoc for the economy.

Housing has become such a hot button issue that investors sold off U.S. stocks and pushed the dollar sharply higher on Monday after a misleading media headline said research firm, ISI Group, had written the tax credit probably would not be extended when it expires November 30.

Markets partially recovered after Florida Senator Bill Nelson said he expected an extension of the tax credit would pass later this week and the headline was corrected.

Reid had floated a proposal with Senate Finance Committee Chairman Max Baucus last Friday to extend the first-time home buyer tax credit through December 31, 2010. Senators are considering several other proposals as well.

Under Reid’s plan, the $8,000 tax credit would be phased out over time, dropping to $6,000 in April, $4,000 in July, and $2,000 in October, before expiring at the end of 2010.

The tax credit was approved in February 2008 and about 1.5 million tax returns filed with the Internal Revenue Service have claimed the credit at a cost to the government of $10 billion, according to officials.

Reid’s offer is a counterproposal to Senator Johnny Isakson who wants to extend the $8,000 tax credit through June and expand it to all buyers of homes that will be a primary residence.

Isakson, a former real estate agent, would also raise the income limit of eligible home buyers to $300,000 per family from the current $150,000 limit.

Reid is in the midst of negotiations with Senate Republicans over a pending proposal to extend insurance benefits for the jobless.

In remarks on the Senate floor, the Nevada Democrat said he expected to bring up his proposal, Isakson’s proposal, which has support from Senate Banking Committee Chairman Chris Dodd, and a separate one from Senator Jim Bunning.

The U.S. real estate and homebuilding industry is lobbying Congress to extend the tax credit although critics say it gives cash to many buyers who would have purchased a home without the benefit.

The White House has also raised concerns about the cost of expanding the credit.

Lawrence Summers, Obama’s top economic adviser, told Reuters last week that the administration would be open to extending the existing credit but wants to see it remain focused on first-time buyers.

Additional reporting by Steve Holland and Andy Sullivan, Editing by Kenneth Barry