Extending The Bush Tax Cuts Forever: Fiscal Insanity

The Congressional Research Service posted a report examining what affect the looming expiration of the Bush tax cuts would have on the economy. According to The Daily Dish, extending these breaks forever would be fiscally insane.

The Atlantic.com reports

A recent study by Alan Auerbach and William Gale projects that tax revenue would have to be permanently increased by 4.6% of GDP just to keep the debt-to-GDP ratio at the current level over the next 75 years under the current law scenario (i.e., allow the Bush tax cuts to expire). They refer to this as a fiscal gap of 4.6%.

If the Bush tax cuts were permanently extended the estimated fiscal gap rises to 7.2%. They project that by 2085, debt as a percentage of GDP would approach 600% under the current law scenario and 900% if the Bush tax cuts are extended—extraordinary levels that are unprecedented for the U.S.

Read more here

Questions for the Tax Lady: October 18th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: If an "Offer in Compromise" was rejected in 2007 for taxes owed 2001 and 2002, does this affect the Statute of Limitations?

Generally, the IRS has 10 years to collect any unpaid taxes from you. The clock starts running when the IRS officially assesses the taxes – not when you filed the return, or when the taxes were originally due.

Submitting an Offer in Compromise causes the Collection Statute Expiration Date (CSED) to be suspended; which means the clock stops running once the IRS receives your offer and determines that it is processable. Once your offer was rejected, the clock started running again. This means that if you Offer in Compromise was under review for 90 days, an additional 90 days was added on to the CSED dates for you 2001 and 2003 back tax debt.

To sum it up: Your new CSED will be extended by the length of time the IRS reviewed your offer, plus 30 days. For example, if your original CSED was May 15, 2012, and the IRS took 4 months to review your offer before ultimately rejecting it, your new CSED would be October 15, 2010 (add the four months the IRS was reviewing your offer, add on 30 more days).

Question: I filled an automatic six month extension in April, but forgot to get my tax return in by last week's deadline. What should I do Roni?

You need to file your return immediately. The penalties for not filing pile up quickly, so it is in your best interests to file your return as soon as possible. If you will not be able to pay the amount of taxes owed, file anyway; pay what you can, and call the IRS to request an installment agreement for the rest.

Questions for the Tax Lady: October 11th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply. I will do my best to get an answer for you!

Question #1: Is it better, tax-wise, for married couples to divorce and cohabit, or is this an urban legend?

Answer: Ah, the marriage penalty, this myth continues to circulate even though it’s largely untrue. Years ago, if both spouses worked, it may have been more beneficial to be divorced and filing taxes separately.

However, years of tax adjustments have removed the marriage penalty from all but the most unique tax circumstances. By and large, the tax code allows married couples equal benefits to single people. For example, the standard deduction for filing single is $5,700. For a married couple filing jointly, the standard deduction is $11,400. Exactly double the amount for single.

Don’t go rushing to a divorce lawyer to save money on your taxes. If you really feel like filing jointly is costing you more money, talk to a tax professional and see if you would do any better by filing separately.

Question #2: I filed an automatic six month extension last April, but have not finished preparing my return yet. Is it possible to request another extension?

Answer: Unfortunately for you, the six-month extension is the end of the line, tax-wise. (Unless of course you are living out of the country). October 15 is the very last deadline before the IRS will start slapping you with failure to file penalties. If you are struggling with preparing your tax return, you may want to enlist the aid of a qualified tax professional.

My recommendation would be to do whatever it takes to get that return mailed or electronically submitted by midnight, October 15. Then immediately start getting ready for the next filing season so you can avoid this problem next year.

Questions for the Tax Lady: September 13th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Is the IRS right when they say we have to pay them back the first time home buyers credit of $7,500 we received two years ago when my husband and I got the house, I am the borrower and he is the cosigner, but he has been a cosigner on another home before this one as well.

There have been a few different versions of the Home Buyer Tax Credit over the last few years. From the question, it sounds like you received the original 2008 tax credit, worth a maximum of $7,500.

Unfortunately for the taxpayers who took advantage during the first wave of the credit, the IRS is expecting a payback. While the government called it a credit, in reality the original version was little more than an interest-free loan. Starting with the 2010 tax filing season, those repayments are coming up due. That means your tax bill will be about $500 higher than you were expecting.

Anyone who claimed any of the home buyer credits in the last few years should consult a qualified tax professional to make sure you have met all your federal tax obligations. The rules are tricky, and the IRS will be looking closely at every taxpayer who took advantage of this tax break.

Question #2: I filed an automatic extension with the IRS (Form 4868) when do I need to get my return filed by?

Every taxpayer is automatically entitled to a six-month extension when filing their taxes. So, your tax return is now due on October 15.

Remember, if you have additional taxes from 2009 due, those were still supposed to be paid by April 15. If your tax return shows a balance due, you may have some late payment penalties and interest tacked on to your bill. It may not be much, but let this be a reminder to plan ahead next tax season!

Odds Brightening For Tax Cut Extension

While America waits for Congress to return from their summer break, experts are weighing in on whether the Bush tax cuts will be extended or not. As the January 1^st deadline approaches, the lack of information about tax rates for 2011 is frustrating many taxpayers.

Forbes reports:

On Jan. 1, 2011 the top income tax rate on ordinary income and dividends will go back to 39.6%, the top tax rate on capital gains will revert to 20%, and the top tax rate on estates will go back to 55%. Some in Congress want to extend the tax cuts for everyone, some want to extend them but not for the "rich," and others want to hold the dividend tax rate to 20%. These decisions make a huge difference to American business. But rather than putting it up for a vote, Congress is playing political games.

Our best guess is that, ultimately, all the current tax rates on regular income, dividends and capital gains get extended for another year. When this happens remains a major mystery, and no matter what we say or think, uncertainty about all of this remains extremely high.

Ideally, it would happen before the election this year. But this would require President Barack Obama and the Democrats to turn dramatically, just when the public is paying more attention to politics. It would look opportunistic, demoralize some liberal voters and undermine the Democratic position that tax rates on the rich don't matter that much to the economy.

How about in a lame duck session? If the consensus is right and Republicans take the House and make large gains in the Senate, it would give Democrats a chance to say they are listening to the voters. But in a lame duck session, Speaker Nancy Pelosi would still rule the House with little to no incentive to do the heavy lifting needed to pass a bill.

Continue reading at Forbes.com…

Questions for the Tax Lady: July 19th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: I saw in the news that the homebuyers credit was extended. What is the new cutoff to qualify for the credit?

The deadline for closing on home purchases has been extended from June 30 to Sept. 30, 2010. This means that in order to qualify for the credit, the purchase of your home must be completed before September 30^th, 2010. However, as the buyer, you are still required to have entered need to enter into a binding contract by April 30, 2010.

Question #2: Will I have to pay a tanning tax on lotions and supplies I purchase at my local tanning salon?

No. According to the IRS the tax does not apply to spray tans or topical creams and lotions. It is only levied on the actual indoor tanning service.

Senate Combines Jobless Benefits, Homebuyer Credit

While still recovering from a failed attempt to extend unemployment benefits last week, Senate Democrats are working on a new bill that would combine the unemployment benefit extension with an extension of the homebuyer’s credit.

Sponsors of the legislation have said it aims to create more jobs and support the struggling real estate market. As this article from the Associated Press claims, Democrats are going to need to get a handful of Republicans on board if they want the bill to pass the Senate.

Under current law, homebuyers who signed purchase agreements by April 30 must close on their new homes by Wednesday to qualify for credits of up to $8,000. The bill would give those buyers until Sept. 30 to complete the purchases and qualify for the credit.

Democrats hope to pick up Republican support for the bill by combining the two provisions. They have been trying for weeks to pass an extension of unemployment benefits as part of a larger tax and spending package, but the larger bill died in the Senate last week.

Without an extension, unemployment payments would continue to be phased out for more than 200,000 people a week.

Many Democrats see the benefits as insurance against the economy sliding back into recession. Many Republicans, however, worry that adding nearly $34 billion to the budget deficit will only contribute to the nation's economic problems.

Continue reading at Google.com…

Unemployment Benefits Extension Nixed for Nearly 1 Million

According to CNN Money, over a million Americans have lost their unemployment benefits as Senators failed to pass an extension last Thursday. There were 57 votes for the legislation, but it was not enough to overcome the GOP filibuster of the bill.

Hoping to overcome deficit concerns, the Senate trimmed down the bill yet again on Wednesday night so that it would only increase the deficit by $33.3 billion over 10 years, instead of $55.1 billion. The main changes were to scale back additional Medicaid funding for the states and to reallocate some stimulus and Defense Department spending.

The bill will now be pulled, according to two Democratic leadership aides. This leaves many groups in flux, including the jobless who have lost their safety net, companies who are waiting to learn what tax breaks are extended, and governors who were counting on the additional funds to balance their budgets.

The grab-bag legislation pushes back the deadline to file for federal unemployment benefits until the end of November, renews expired tax provisions, lengthens a small business lending program and adds to infrastructure investments.

Continue reading at CNN.com…

Extending the Homebuyer’s Credit… Again?

The Homebuyer’s Credit expired on April 30, 2010, but a handful of politicians are working to reinstate it, fearing an extended real estate slump. While Harry Reid proposes extending the closing deadline on the most expired credit (all pending deals must close before June 30 to be eligible for the credit) to September 30, Ron Paul is proposing we make the credit permanent.

Critics argue that the credit was wildly expensive for taxpayers as a whole, and does little to stimulate real estate sales. Many say that those who took advantage of the credit would have purchased a home anyway, and the credit simply made them accelerate their purchase.

On the other hand, following the expiration of the credit, many real estate experts fear that the housing market will slump, causing a “recession double dip.” Of course, homeowners who claimed the credit were thrilled to receive up to $8,000 in free money from Uncle Sam. Add in that this in an election year; every politician is looking for ways to curry favor with voters, and this tax credit was very popular with taxpayers.

Read more about Reid’s proposal here, and see more about Paul’s proposal here.

Bill Would Extend Home Buyers' Deadline for Tax Credit

Despite reports that there was not enough support for a homebuyers tax credit extension, a bill has been introduced in Senate floor to extend the deadline by a few months. According to the Washington Post, the creators of the legislation hope to allow qualifying taxpayers an additional three months to claim the credit.

Senate Majority Leader Harry M. Reid (D-Nev.) co-authored a proposal that would allow those eligible for the tax credit to close on a home by Sept. 30 to give lenders more time to process a crush of applications.

Reid and his co-sponsors hope to attach the measure to a separate bill moving through the Senate that would extend a variety of tax breaks as well as emergency unemployment benefits. But even if senators succeed in attaching the tax-credit initiative, Democrats are still struggling to assemble the votes needed to pass the overall tax bill.

To qualify for the tax credit -- $8,000 for some first-time buyers and $6,500 for certain current homeowners -- buyers must have signed a contract by April 30 and close on the their transactions by June 30.

The National Association of Realtors said many home buyers will not be able to meet the June 30 closing deadline because of the surge in loan volume and delays related to home appraisals and short sales, transactions in which lenders allow struggling homeowners to sell their homes for less than they owe on them.

Continue reading at Washington Post.com…

Questions for the Tax Lady: April 12th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: I still have not prepared my tax return. Is it possible to get professional help this close to the tax deadline?

Yes! Go to RDTC.com/Locations to find the closest Roni Deutch Tax Center. All of my tax centers are open late through tax season, so you should have no trouble making an appointment.

Question #2: How do I request an automatic extension from the IRS?

To get an automatic six month extension of the deadline to file your return with the IRS you will need to complete and file IRS Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return. However, this will not extend the deadline to pay the IRS any taxes you might owe.

Senate to Take Up Unemployment Insurance Extension

The highly anticipated legislation that will extend unemployment insurance benefits, prevent doctors from absorbing cuts in Medicare payments and provide money to struggling state governments passed a significant hurdle in the Senate on Tuesday. It gained momentum after 60 new tax breaks for individuals and businesses were added to the bill.

The unemployment insurance alone — to provide weekly unemployment checks averaging above $300 to people whose core 26-week benefit package has run out — will cost $66 billion through December. In some states people are eligible to receive benefits for up to 99 weeks.

The bill demonstrates the difficulty Democrats face as they focus on jobs. It doesn't include new ideas for boosting jobs, but instead reprises elements of last year's $862 billion economic stimulus bill, which is earning mixed reviews from voters. Simply extending those provisions has produced a far more expensive measure than a separate so-called jobs bill that Democrats hope to soon send to President Barack Obama. That measure would boost highway spending and give tax breaks to companies that hire the unemployed and could clear the Senate for Obama's desk this week.

At a gross cost of about $148 billion, Tuesday's measure illustrates the extraordinary cost of the unemployment safety net as the economy inches out of the recession. Democrats say the unemployment benefits inject demand into the economy and say renewing the tax cuts helps preserve existing jobs.

The measure closes $29 billion of tax loopholes to help defray its cost, including one enjoyed by paper companies that get a credit from burning "black liquor," a pulp-making byproduct, as if it were an alternative fuel.

Continue reading at Google News…

Congress Grapples with Estate Tax

Next week, the United States House of Representatives will vote on whether or not to extend the current estate tax rates or allow them to expire at the end of 2009. While members of Congress support the extension, the biggest roadblock will be getting legislation through the Senate, who will need to account for spending. The 10-year extension is estimated to cost $234 billion since the rate was due to increase in 2011.

"We believe that a permanent extension of the existing law is the best policy," Steny Hoyer, the chamber's majority leader, told reporters.

Preserving the current rates will be harder in the U.S. Senate because that body's rules require a way to pay for it.

A 10-year extension of the tax would cost an estimated $234 billion versus allowing the tax to revert to a higher rate in 2011, as currently scheduled, according to congressional aides.

Senate Finance Committee Chairman Max Baucus has proposed extending the current 2009 law and indexing it to inflation, but the Senate's intense focus on healthcare and limited days in the legislative calendar add further hurdles.

"We need to take the time to deal with it," said Senator Kent Conrad, a Democrat on the finance panel charged with tax issues. But he acknowledged the challenges in getting it done before the end of the year.

Continue reading at Reuters.com…

Realtors’ Agenda Shifts from Homebuyer Tax Credits to Lending Issues

After successfully lobbying for an extension and expansion of the first-time homebuyers credit, the National Association of Realtors is reportedly set to focus it efforts on relieving the commercial real estate credit crunch. According to Market Watch, there are hundreds of billions of dollars in commercial loans that will require refinancing over the next two years.

"The commercial area is something that is going to be in the news more and more, as loans are rolled over and need to be refinanced," NAR senior vice president and chief lobbyist Jerry Giovaniello said Sunday at the industry group's annual conference in San Diego.

Commercial transactions are down due to a "virtual lack of available credit," according to Lawrence Yun, chief economist of the NAR. About $800 billion to $850 billion in commercial loans will mature in the next two years and will require refinancing, he added.

"The credit has to be available ... or potentially lenders will end up owning half of Manhattan," Giovaniello said.

For residential properties, meanwhile, lending requirements remain tough, he said.

"The problem has been to convince lenders, federal agencies and Congress to push the money from Wall Street to Main Street," Giovaniello said. "We think that the lenders could be more flexible. Their capital standards have increased, their stock prices have increased and they need to get out of that overreaction mode."

NAR's policy agenda also includes making sure the Federal Housing Administration remains strong.

Continued tight underwriting standards for conforming mortgages have led prospective buyers to seek out home loans insured by the FHA, which have seen an uptick.

Continued at Market Watch.com…

Property Buyers in US Rush to Beat Deadline for First Time Tax Credit

Realtors and buyers are in a dead rush to meet the deadline for the homebuyers tax credit at the end of this month. Since there has not yet been a final decision about extending the credit, thousands across the country are trying desperately to close escrow before the looming deadline. However, as PropertyWire.com reports, many of them are finding out that they are simply too late.

The latest figures from the National Association of Realtors (NAR) show that its Pending Home Sales Index rose to 110.1 in September, its eight consecutive monthly rise.

The index now stands at the highest level since December 2006 when it was 112.8 and is 21.2% higher than September last year, marking the largest annual gain on record.

But it could be a short-lived blip as many analysts believe that the recovery in the US housing market is being propped up by the first time buyer tax credit that was introduced by the Government to boost demand for houses.

‘What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,’ said Lawrence Yun, NAR chief economist.

Meanwhile, the foreclosure crisis is moving into small towns and suburbs which have previously been untouched by the economic downturn, according to new research.

Administration to Decide on Housing Tax Credit Soon

Despite pleas from thousands of homebuyers and intense lobbying, the Obama administration and those deciding the fate of the first time homebuyers tax credit are not ready to make a decision just yet. According to MarketWatch.com, Housing and Urban Development Secretary Shaun Donovan said earlier this week that the administration does not have the information they need yet to make the decision, and will not have that information for a few weeks.

"We understand the urgency of this situation," Donovan said at a Senate Banking Committee hearing, according to Congressional Quarterly. "And we believe that within the next few weeks, we will have additional data that will allow us to sit down with you" and discuss whether and how to extend the credit, said Donovan, according to CQ.

Sens. Christopher Dodd, D-Conn., and Johnny Isakson, R-Ga., have proposed extending the $8,000 credit through the end of next June. Created by the economic stimulus package signed by President Barack Obama in February, it's now set to expire on Nov. 30.

"The credit is set to expire in five weeks," said Dodd. "But the work of stabilizing the housing market won't be done. We still need to use every tool at our disposal to try and fix this problem," Dodd said.

The hearing came after the Commerce Department reported that new construction on U.S. housing units was essentially flat in September, at a seasonally adjusted annual rate of 590,000. See full story.

Following 14 straight quarters of declines, many economists expect that residential investment will finally add to U.S. growth in the current quarter, which ended in September.

IRS Extends Amnesty Program for Tax Cheats

A few weeks ago, I posted a blog entry about the IRS amnesty program and the deadline for offshore tax evaders to turn themselves in. However, with the Wednesday deadline approaching, the Federal government has announced a 3-week extension. Check out the following article about the announcement courtesy of the Associated Press.

Procrastinating tax cheats will get a few extra weeks to apply for an amnesty program that has been flooded with applications from people who hid assets overseas.

The Internal Revenue Service said Monday it will extend the deadline, originally set for Wednesday, until Oct. 15.

More than 3,000 Americans have applied for the program, which promises no jail time and reduced penalties for tax dodgers who come forward, said a government official who spoke on condition of anonymity because the agency has not publicly released the size of the program.

The IRS is extending the deadline to give a rush of applicants more time to prepare their paperwork. The agency said there will be no additional extensions.

Tax advisers said the program, combined with a high-profile case against Swiss banking giant UBS AG, has generated a lot of calls from nervous tax dodgers.

"They're sitting in disbelief that this is going on," said Richard Boggs, chief executive of Nationwide Tax Relief, a Los-Angeles-based tax firm that specializes in clients with tax debts exceeding $100,000. "I ask people to ask of themselves, 'What is their peace of mind worth? What is a fresh start worth? What is a clear conscience worth?'"

The IRS long has had a policy that certain tax evaders who come forward before they are contacted by the agency usually can avoid jail time as long as they agree to pay back taxes, interest and hefty penalties. Drug dealers and money launderers need not apply. But if the money was earned legally, tax evaders can usually avoid criminal prosecution.

Nearing an End: The First-Time Homebuyers Credit

Early in the year Congress enacted an $8,000 tax credit for first time homebuyers purchasing a house between January 1st and November 30th of this year. As you can tell, that November deadline is just around the corner. In order to qualify, your house must close escrow on or before that date. The IRS even states, “you may not claim the credit in anticipation of a purchase that has yet to happen.”

Beating the Deadline

If you plan to take advantage of the credit but have not already begun the process of buying a home, you are probably too late. Even after you have an accepted offer, and approval on a loan, it can take 30 to 60 days to close escrow. Additionally, title and escrow companies are being swamped with purchases that need to be completed before December 1st, which will likely cause delays if you are trying to close escrow at the last minute.

On the other hand, if you have already begun the process then there are a few things you can do to make sure you beat the deadline. Depending on what stage in the game you are at, you want to make sure that you have all of your ducks in a row. Tell your real estate agent, loan officer, and title company that you are in a hurry and push for as short of a close of escrow as possible.

Qualifying as a "First-Time" Homebuyer

There has been a lot of confusion over the phrase "first-time" homebuyer, as you can actually qualify for the credit if you have bought a home in the past. As long as you have not owned your principal residence within the last three years, then you qualify for the credit. This means, that if you owned rental property and have rented it out for the past three years while residing elsewhere (in property you do not own), you qualify for the credit. So, if you purchased any property this year, then I would highly recommend speaking with a tax professional to find out if you qualify or not. You may be pleasantly surprised.

Non-Houses Qualify Too

As I mentioned before, if you purchased any property in the past year you may qualify for the credit. It actually applies to multiple different types of property including condos, townhouses, motor homes, and even houseboats. As long as the property is your principal place of residence, you can qualify for the credit. Therefore, a summer or vacation home would not qualify.

Income Limits

In order to qualify for the full $8,000, your adjusted gross income (AGI) needs to be under $75,000 for single taxpayers and $150,000 for married filing jointly. If your income is above those limits, then the amount of the credit will be reduced depending on exactly how much money you made this year. If your AIG exceeds $95,000, or $170,000 for married couples filing jointly, then you will not qualify for any of the credit.

Instant Money vs. Waiting

If you are in the process of purchasing a home then you may not have to wait until next year to get the credit. You actually have a few different options. First of all, the IRS will allow you to claim the credit on your 2008 return, meaning you can amend your old return and get the money within a few weeks. Alternatively, if you are taking advantage of an FHA loan then you can use the credit towards your closing costs, or for an additional down payment. Finally, you could wait and claim the full $8,000 credit on your 2009 tax return this April.

Future of the Credit

As the credit's expiration date gets closer and closer, many are pushing Congress to extend and expand the credit. In fact, the National Association of Realtors and the National Association of Home Builders have spent a lot of time and money lobbying Congress. They are hoping to get the credit extended into 2010, raise the amount to $15,000, and make it available to all homebuyers. Senator Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, and Senator Johnny Isakson (R-Ga.) have sponsored a bill that would expand the credit, but it is very unlikely any legislation will get passed into law before the November 30th deadline.

Special IRS Web Section Highlights Important Credits and New Additions

The IRS posted this new press release recently highlighting back to school tax breaks, an expansion of the 529 plan, and the relatively new $2,500 college tax credit. Check out an excerpt of the release below.

The new Tax Benefits for Education section on IRS.gov includes tips for taking advantage of long-standing education deductions and credits. The “one-stop” location for higher education information includes a special section highlighting 529 plans and frequently asked questions. The Web section also features two key changes that will be in effect during 2009 and 2010 that were included in the American Recovery and Reinvestment Act (ARRA), enacted earlier this year.

One change allows families saving for college to use popular 529 plans to pay for a student’s computer-related technology needs. Under the other change, more parents and students will be able to use a federal education credit to pay part of the cost of college using the new American opportunity credit.

“With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can,” said IRS Commissioner Doug Shulman. “529 plans have become a very attractive way to save for college, and our Web section is designed to help people get information about these plans. In addition, the new American opportunity credit can help many parents and students pay part of the cost of the first four years of college.”

Pending Home Sales Hit 6th Straight Increase

Yesterday a new report was published with more good news for the real estate market. According to the study, more Americans bought homes in July than in June, which represents the sixth straight month that there was an increase in home sales. Many experts claim that the increase is a direct result of the first-time homebuyers credit that expires at the end of the year. Checkout the following article from CNN on the recent findings.

The pending home sales index from the National Association of Realtors rose 3.2% in July after rising by 3.6% in June. That's 12% higher than July 2008, and it marks the sixth straight increase since record-keeping began in 2001.

The reading far exceeded forecasts of economists surveyed by Briefing.com, who predicted a 1.5% increase. Signed real estate contracts often take many weeks or months to complete, so they are considered a forward-looking indicator.

Momentum in the housing market has clearly turned for the better, said NAR chief economist Lawrence Yun, in a written statement.

"The recovery is broad-based across many parts of the country," Yun said. "Housing affordability has been at record highs this year with the added stimulus of a first-time homebuyer tax credit."

The first-time homebuyers tax credit, passed earlier this year as part of the economic stimulus package, is worth 10% of the home purchase price up to $8,000. People who have not owned a home in the previous three years are eligible for the credit.

However, the tax credit expires on Nov. 30 and it usually takes about 90 days to close on a house after a contract is signed. As of Sept. 1, there were only 90 days left before the credit ends.