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Home Buyer Tax Credit Conundrums

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CNBC.com

An extension/expansion of the first time home buyer tax credit seems to be all anyone in the housing world is talking about today, and insiders tell me there is much talk about it on Capitol Hill today as well.

Perhaps it was news of the massive fraud in the administration of the credit that was unveiled yesterday, or the Realtor's report this morning of a huge surge in September sales, likely thanks to first time buyers trying to get in on the tax credit before it expires.

In addition to the proposal being hammered out by Senators Christopher Dodd (D-CT) and Johnny Isakson (R-GA), which would extend the $8000 credit through June 30th and expand its income cap as well as open it to all buyers, another proposal is leaking out of the Senate Finance Committee.

Insiders tell me this would be a phase-out plan.

The way it works: The credit would stay exactly as it is through March 31st, then it would go to $6000 from 3/31 through 6/30 and then it would go to $4000 until 9/30 and then peter out somehow around $2000.

"That's politically more palatable," says my insider contact.

But on the negative side, four time frames are pretty confusing for buyers and the IRS to deal with, and we all know now how the IRS has been dealing with confusion in the tax credit so far. Administration of such a credit would be "burdensome" to say the least.

So where are we with the Dodd/Isakson plan? Well it was supposed to be tacked on to the unemployment insurance bill, but a source in the Dodd camp tells me there was concern about what that might do to the extension of unemployment benefits, which are obviously a big deal these days. So it could come up as a freestanding bill and says the source, "I wouldn't be surprised if it came up next week."

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Then of course the House has to deal with it. They might look easier to persuade, but yet another source tells me both Majority Leader Steny Hoyer (D-MD) and Rep. Paul Kanjorski (D-PA) are extremely concerned about the budget deficit.

Stay tuned!

Questions? Comments? RealtyCheck@cnbc.com