The Homebuyer Tax Credit: When Will They Ever Learn?

By :: October 22nd, 2009

The early returns are coming in on the First-Time Homebuyer Tax Credit. And it appears to be a bigger boondoggle than even I thought it would be.

 

At a House Ways & Means Oversight subcommittee hearing today, the Internal Revenue Service inspector general reported that the IRS is auditing more than 100,000 of the roughly 1.4 million returns that included a claim for the credit. This is a staggering audit rate for an agency that usually reviews only about 1 percent of returns.

 

And what the agency has found is jaw-dropping. Almost 74,000 buyers claimed the credit even though they probably owned a house over the past three years (the credit is only available to those who did not own during that period). One dead give-away: More than 12,000 of this bunch claimed the residential energy credit sometime during the past three years. Another 19,000 filed for the homebuyer credit even though they had not actually gotten around to buying a house, a fairly spectacular exhibition of chutzpah. And 580 credits were claimed on behalf of children, including at least one four-year-old—obviously a budding real estate developer.

 

Some taxpayers were more confused than crooked. Almost 50,000, who didn’t realize the credit increased from $7,500 to $8,000 in 2009, may have claimed less they deserved. But there was plenty of fraud too. The agency is investigating 167 separate criminal schemes associated with the credit.

 

And there is more. In a separate study, the Government Accountability Office concluded that in 2008-2009 more than 25,000 credits were claimed by people who reported no income and another 165,000 by those earning $25,000 or less. Care to wager how long it will be before those houses end up in foreclosure? If they were ever actually purchased, that is.

 

There is a lot more we need to learn about this mess. But it is easy to imagine the recipe. Take a commssion-starved real estate agent, add a buyer looking for a deal, and throw in a huge cash payment from the government. Is it any surprise that 10 percent of those claiming the credit either bungled the transaction or were engaged in a flat-out scam. 

 

Add to all of this the estimate by Ted Gayer at Brookings that more than 85 percent of the projected 2 million people expected to claim the credit would have bought a house anyway. Like the late, unlamented cash for clunkers program, the homebuyer subsidy is very likely doing little more than further running up the national debt to accelerate  some home purchases.

 

Congress is now debating whether to either continue the credit into next year or even expand it to include all home purchases. This program, as they used to say up in the North End of Boston, needs to take two in the hat.    

 

11Comments

  1. Anonymous  ::  10:35 pm on October 22nd, 2009:

    Hey,
    On the upside, just because 195,000 people claiming no income or income under $25,000 claimed the credit, that doesn't mean they actually have income less than $25,000. So, they won't all end up in foreclosure after all. Sadly, the truthful ones probably will.

  2. Anonymous  ::  3:14 pm on October 23rd, 2009:

    Let me get this straight….people are committing fraud on their tax returns and because of that we have to abolish the 1st time homebuyer credit? People commit fraud on their tax returns all the time – that is why we have to give social security numbers for children – so people can no longer get credit for their dogs. I don't see how IRS fraud and helping homeowners but a bottom on the real estate market are related. People commit fraud – if it wasn't this program it would be something else.

  3. Anonymous  ::  4:46 pm on October 23rd, 2009:

    This money, along with the home mortgage deduction and the property tax deduction (as well as food stamps and housing assistance) should be channeled into a more robust and refundable child tax credit so that people have the income to pay their mortgages or rent.
    I currently serve on a condo board and foreclosures have recently increased – lowering prices again. I suspect that the buyers credit has opened up the market to people enough so that banks can unload their foreclosed properties rather than sitting on them. It could be that the credit is opening up the trap door, rather than reboosting housing prices.

  4. Anonymous  ::  7:18 pm on October 26th, 2009:

    You missed the point entirely. All programs have a fraud/waste component. Ideally, you don't design programs with fraud maximization in mind (we have Medicare for that already). The other point you missed was that most people were buying homes anyway, meaning taxpayers spent a lot of money to have what would have unfolded anyway had the money been saved or better spent on real “stimulus”.

  5. Anonymous  ::  4:49 am on November 19th, 2009:

    As you probably knowby now, the program has been extended until April 30 2009 ( contract has to besigned by this date) and expanded to include indivduals who have owned a primary residence during the last five years.

  6. Anonymous  ::  4:36 am on January 2nd, 2010:

    This is another massive bank subsidy at taxpayers expense imho.

  7. Anonymous  ::  1:33 pm on April 8th, 2010:

    it's sad how hi the taxes grew

  8. Anonymous  ::  5:53 am on July 28th, 2010:

    This is another example to me of how generous the government is — with other people's money.
    Sadly, the money they are using is not mine nor my children's. It's my grandchildren's.

  9. Anonymous  ::  10:45 pm on July 28th, 2010:

    That's not the only issue…you're talking about borrowers who make a combined household income of 35-50k in areas where the average median price is 500-600k.
    House values are going to adjust to what people are making, period. That's a scary thought, given that most economists think that we have hit “rock bottom.”

  10. CreditCardDebt.co.uk  ::  4:25 am on March 3rd, 2011:

    Some one works very hard and pays tax regularly and genuinely but the money wasted by other ways mentioned in this article. But it is nice see such articles as it educates everyone on real issues we all facing.
    ————–
    Monica Boyd

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