Senate Close to Deal Replacing Homebuyer Tax Credit

Oct. 27 (Bloomberg) -- U.S. Senate leaders moved closer to an agreement on replacing an expiring $8,000 tax credit for first-time homebuyers with a smaller one that expands access to more borrowers, two people familiar with the matter said.

The deal would reduce the size of the tax credit to 10 percent of the sale's price, capped at $7,290, the people said. The credit would be available on home purchases that are under contract by April 30, and borrowers would have 60 days more to close the sale. The existing credit is due to end Nov. 30.

The new agreement, which is still being negotiated and may change, would expand the credit to so-called step-up borrowers who have lived in their current home for at least five years. The income eligibility for first-time homebuyers would remain the same at $75,000 for individuals and $150,000 for couples. The income criteria for step-up buyers would be $125,000 for individuals and $250,000 for couples.

The credit would be limited to homes costing $800,000 or less.

The legislation, also being considered by leaders in the House, may be attached to a bill extending unemployment benefits that may be debated as early as this week, according to Regan Lachapelle, an aide to Senate Majority Leader Harry Reid.

Lawmakers are hoping the credit will spur home sales as the economy struggles to recover from the worst drop in home prices since the Great Depression.

Senator Bill Nelson, a Florida Democrat, told reporters yesterday of the tax credit, "We should be able to extend that later this week." Nelson was traveling with President Barack Obama on Air Force One to a speech in Jacksonville, Florida.

To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.com