First-Time Homebuyer Tax Credit Likely to Be Axed From Slimmed Down Reconciliation Bill

The first-time homebuyer tax credit President Joe Biden first proposed as a candidate for the nation’s highest office is likely to be one of the first casualties as Congress pares down its $3.5 trillion reconciliation bill, according to a report.

Cutting spending to an amount that can win every Democratic vote, needed for the legislation to pass an evenly split Senate with the addition of the vote of Vice President Kamala Harris, means much of Biden’s housing agenda is “at risk,” said Jaret Seiberg, managing director of Cowen Group.

Both the Senate and the House of Representatives agreed in mid-August to a $3.5 trillion price tag as part of the framework of the bill. Sen. Joe Manchin (D-WV) later said he wouldn’t support spending above $1.5 trillion, and Sen. Kyrsten Sinema (D-AZ) said she was opposed to the bill without citing details of what she would support.

“The problem is that Senate does not have the votes for $3.5 trillion in spending,” Seiberg wrote in a Sunday report to clients of the Washington D.C. research firm. “The real size could be between $1.5 trillion and $2 trillion in spending. That could mean cutting out more than half of the spending in the House version of the package”

The homebuyer tax credit, along with other housing provisions, will likely be among the first provisions to be cut, he said.

“We believe prospects are dropping for inclusion of housing measures in the reconciliation package,” Seiberg wrote. “This is about the price tag. The housing provisions overall cost $327 billion. That is about 10% of the planned $3.5 trillion reconciliation package."

There were several versions of the tax credit pending in Congress. House Financial Service Committee Chair Maxine Water (D-CA) proposed grants of up to $20,000 for first-time, first-generation homebuyers that would be capped at 10% of a home’s purchase price.

In April, Rep. Earl Blumenauer (D-OR) and Rep. Jimmy Panetta (D-CA) introduced legislation that more closely tracked the proposal Biden made as a candidate in early 2020: A tax credit for first-time homebuyers of up to 10% of the purchase price, or $15,000.

Both proposals would have to pass both the House and Senate before a bill could go to the White House for a signature. Inclusion in the reconciliation bill would be their best hope of passing because that type of legislation does not require the support of Republicans.

“What seems likely to us is that the final version includes much less for housing,” Seiberg said. “What money is appropriated will likely go to programs that rehabilitate existing homes or provide more rental assistance vouchers.”