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Wednesday, September 30, 2009

Expansion of First Time Homebuyer Credit & Allowing Losses on Primary Residence

On September 24, 2009 Representatives Childers and Kratovil introduced a bill which was referred to the Ways and Means Committee to make certain changes to the First Time Homebuyer credit.  Major changes introduced include:
  • Allowing the credit for anybody "who purchases a principal residence"
  • One year extension of the credit to December 1, 2010
  • Will be effective on the date signed by the President
Aaron's Take: While I could see that an extension could possibly (but I doubt will) pass, I don't think that this is the one that will succeed.  The dramatic expansion to all taxpayers who purchase a principal residence will simply cause a churning of the current home inventory.  Opening this up to all taxpayers will create as much inventory as it is clearing, as current homeowners look to sell their own houses to move up into better homes, or move out of their depressed communities.

Additionally, the bill includes a provision to allow for a limited deduction on the loss of a primary residence.  Currently, no lossess are allowed when selling anything that qualified under personal use.  This bill would allow a deduction for a loss on a principal residence that has been used for more than two years.  The loss would be limited to $6,000 ($12,000 joint) and no more than $2,000 could be claimed in each year. 

Aaron's Take: I don't see how this bill will pass in its current form.  While it seems nice, a $2,000 deduction on the loss of a home would make a maximum difference of $700 for the wealthies taxpayers, and a $300 difference for most middle clas taxpayers.  Besides for the fact that the cost of implementation and enforcement would far exceed the benefit, this bill is too little too late.  Most of the losess have already occurred. 

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Aaron Blau, E.A. is the Vice President of the Central Arizona Chapter of Enrolled Agents and a member of the Government Relations Committee of the National Association of Enrolled Agents. The opinions and ideas expressed here are in no way representative of the official position of the National Association of Enrolled Agents, Arizona Society of Enrolled Agents or the Central Arizona Chapter of Enrolled Agents.

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