New homeowners credit helps MU students buy homes

McCaskill is against extending the measure.

By Rachel Allred

Published Oct. 23, 2009

As December draws near, so does the deadline on a tax break for people who purchase a new home.

The incentive, which began in 2008, provides an $8,000 tax credit for any new homebuyer. The program was originally implemented under the Housing and Economic Recovery Act and continued this year through the American Recovery and Reinvestment Act.

John Patty, political science professor at Washington University in St. Louis, said the tax credit is available until Dec. 1.

"The new home-buyer tax credit was originally a $7,500 tax credit for people who were buying a home for the principal residence in 2008," Patty said. "The credit had to be repaid over 15 years. In 2009, Congress extended the time period during which the credit could be claimed."

Patty said the credit is essentially an interest free loan. New homebuyers who purchase a house this year won't have to repay the loan if they live in the house for at least three years.

Graduate student Nicole Barkley used the tax credit when she purchased a house earlier this year. Barkley said she began looking for houses before the tax break was announced but was excited to be able to take advantage of the incentive.

"I thought it was awesome," Barkley said. "It was perfect timing and allowed me to actually buy the home. The $8,000 paid for a good chunk of my down payment."

As the deadline for a new homeowner to purchase a house and receive tax credit approaches, Congress is taking steps to continue the program, and several bills are in committee.

"It seems reasonably likely, as both Speaker Pelosi and Sen. Reid are both on the record as supporting it," Patty said.

In a weekly-recorded conference call obtained by The Maneater, Sen. Claire McCaskill, D-Mo., said she does not support extending the tax credit. She said it would harm the economy and delay recovery from the recession.

"I think we've got to pivot and begin looking very carefully at how we're spending money," McCaskill said. "The markets and our financial sector and our economy will react very negatively if we do not start showing some discipline about the deficit because that's just as dangerous to our economic health as a recession."

Rep. Blaine Luetkemeyer, D-Mo., is still pondering the situation as well.

"Congressman Luetkemeyer is carefully reviewing the pros and cons of extending the first time homebuyers tax credit," spokesman Keith Beardslee said.

An extension of the tax credit would be both beneficial and detrimental, Patty said.

"A tax credit would increase the budget deficit, which is larger now as a share of the economy than at any time since the end of World War II," Patty said. "It would presumably lead to some additional real estate sales."

Barkley said the tax credit is great because it helps people buy and sell houses, but it may be a problem in the future because of the debt to taxpayers.

"It's a mixed bag," Barkley said. "It would be nice to know the numbers of how many people it helped compared to how much money we're going to have to pay out in the future."

College students are only positively affected by the tax credit in certain circumstances, Patty said.

"For college students, the extension will help only if they plan to buy a home, their parents are trying to sell a home, or they or their parents are to some degree involved in the real estate market," Patty said. "Otherwise the tax credit will probably not directly affect a college student in any positive way, but will add to the deficit."