Beginning May 1, new California legislation takes effect that will provide a tax credit up to $10,000 to residents who buy their first home or a newly constructed home.
This legislation allocates $200 million to fund tax credits for qualified home purchases; $100 million is for buyers of new, unoccupied homes and the other $100 million is for first time buyers of existing homes.
The tax credits will be available to home buyers on a first-come, first-served basis. This is an incentive for your buyers to act now (as a reminder, the $100 million allocated for last year’s new home buyer program was depleted in just four months).
A notable feature of this year’s legislation is that buyers of newly constructed homes may choose to reserve a tax credit prior to the close of escrow. This will become important as California nears the $100 million cap for homes that may not close escrow before the cap is reached. Buyers that are applying for the First-Time Buyer Credit (purchasing existing homes) will not be able to reserve the tax credit before escrow closes. Details about how to reserve the tax credit can be found here.
Below are some highlights of the new tax credit program:
· Buyers of existing homes must close escrow between May 1, 2010 and December 31, 2010.
· Buyers of new homes can reserve their credit by entering into an enforceable contract between May 1, 2010 and December 31, 2010. They must file the proper paperwork with the tax board and close escrow by August 1, 2011.
· First-time home buyers are eligible whether they buy a newly built or an existing home.
· Current homeowners looking to trade up must buy a newly built home in order to receive the tax credit.
· If a taxpayer qualifies for both tax credits, the law specifies that that the New Home Credit be applied (only one tax credit is allowed per taxpayer).
· The tax credit is worth up to 5% of the purchase price of the home, or $10K, whichever is less.
· The credit will be allocated evenly over three years. If a buyer qualifies for the full $10,000 tax credit, they’ll get up to $3,333 per year. They will need to consult with their CPA for details and eligibility as related to their specific situation.
· The buyer cannot be a dependent and the home purchased can’t belong to a relative.
· The buyer is required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).
And, although it’s a small window, there are some buyers that may be able to combine this new California tax credit with the $8,000 Federal Home Buyer Tax Credit for a total of $18,000 in tax credits. To do so, the purchase contract must be signed by April 30, 2010 (for Federal eligibility) and the purchase must close between May 1, 2010 (when the California program begins) and June 30, 2010 (when the Federal program ends). For the purposes of the California tax credit, the purchase date is defined as the date escrow closes.
As always, please call me to discuss specific situations or to schedule time to review your clients’ mortgage or financial strategies.
Best regards,
ANDY BLOCK
Mortgage Advisor & Financial Advisor
Email · Biography
650.931.0605
License 01096311
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The world of real estate has seen a surge in home buying as sales rose in March by 6.8%, which many attest to the the home buyers tax credit. It seems that many buyers were jumping in just in time to get in on the $8,000 incentive before ending at the end of this month. So, the question that seems to be looming is “Will the government offer another home buyers tax credit?”
