President Obama is expected to sign a bill passed by Congress today extending and expanding the first-time homebuyer tax credit to homes under contract before May 1.

The credit, equal to 10 percent of a home’s purchase price, remains capped at $8,000 for first-time homebuyers, but income limits have been raised.

Congress also approved an expansion of the credit to allow homeowners who have been in a principal residence for at least five of the last eight years to claim a tax credit of up to $6,500 if they sell that home and buy another.

That will provide an incentive not only for entry level, but move-up buyers — a goal supported by real estate industry groups.

An extension of the existing tax credit — currently set to expire at the end of the month — was controversial, as it will cost an estimated $10.8 billion over 10 years. Critics said most of those who have claimed it would have bought a home anyway.

Earlier this year, former real estate broker Sen. Johnny Isakson, R-Ga., introduced a standalone bill that would have raised the ceiling on the tax credit to $15,000 and lifted first-time homebuyer and income restrictions.

In the end, lawmakers who supported an extension of the tax credit were forced to add it as an amendment to a bill extending federal unemployment benefits, HR 3548, to gain passage.

The bill was amended in the Senate last week and approved Wednesday in a unanimous 98-0 vote.

House lawmakers passed the bill today in a 403-12 vote, with all 12 no votes cast by Republicans.

The Obama administration had previously indicated it would support the more limited extension of the homebuyer tax credit included in HR 3548 (see story).

Although income limits for claiming the credit will be raised from $75,000 to $125,000 for individuals and from $125,000 to $225,000 for couples, homes purchases exceeding $800,000 will not be eligible.

Real estate industry groups hailed the extension of the credit as a necessary step to sustain a fragile recovery in housing markets.

“At a time when we are finally starting to see some signs of life in the housing and mortgage markets, extending and expanding the homebuyer tax credit is a critical step to keeping the momentum,” Robert E. Story Jr., chairman of the Mortgage Bankers Association, said in a statement. 

Tax Credit Comparison Chart