Senate leaders back extending home tax credit

The tax credit provides up to $8,000 to first-time home buyers, but it is set to expire at the end of November.

Senators agreed to extend the existing tax credit for first-time home buyers while offering a reduced credit of up to $6,500 to repeat buyers who have owned their current homes for at least five years, said Regan Lachapelle, a spokeswoman for Senate majority leader Harry Reid, a Democrat from Nevada.

The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law, Lachapelle said.

The agreement was announced after the Commerce Department said sales of new homes unexpectedly fell in September.

Lawmakers want to keep home sales from slipping as the economy struggles to recover from the worst drop in prices since the Great Depression. Economists say a recovery in housing is a key to rebuilding the confidence and finances of American consumers, whose spending makes up 70 percent of the world’s largest economy.

The tax credits would be available to home buyers who sign sales agreements by the end of April. They would have until the end of June to close on their new homes, said a congressional aide, who spoke on condition of anonymity because he was not authorized to discuss the deal.

Senator Christopher Dodd, a Democrat from Connecticut, has been negotiating for several weeks with Senator Johnny Isakson, a Republican of Georgia, to craft the extended tax credit. Senate minority leader Mitch McConnell, a Kentucky Republican, agreed that most lawmakers support the homebuyer measures.

Senators were still negotiating the expansion of a separate tax credit that lets money-losing businesses get refunds for taxes paid in previous years, providing them with a source of cash.

Senators in both political parties were hoping to add both tax provisions to a bill that would give people running out of unemployment insurance benefits up to 20 more weeks of federal aid. The Senate could vote on the overall bill as early as today, but lawmakers were still haggling over several unrelated amendments last night.

If the Senate passes the bill, it would go to the House, which passed a similar bill extending unemployment benefits last month. House leaders have hinted they would support extending the tax credit for home buyers.

Lawmakers didn’t release a cost estimate for extending the tax credit, though similar proposals were projected to cost about $10 billion.

Industry representatives said uncertainty about the tax credit is hurting new home sales. September’s decline was the first since March.

It takes 45 days to 60 days to close on a house, making it unlikely a sale made today would be consummated by the end of November, said Lucien Salvant, spokesman for the National Association of Realtors. “Buyers right now have an incentive to hold off, not knowing whether the credit will be extended,’’ Salvant said.

Purchases of new homes dropped 3.6 percent last month to a 402,000 annual pace, which was lower than the most pessimistic economist’s forecast, according to Commerce Department figures.

Material from Bloomberg News was used in this report.