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$10K California Tax Credit Starts The Day After The Federal Credit Goes Away

March 24th, 2010 categories: Buying

Tax Credits Coming-GoingUpdate (3-25-10): Gov. Schwarzenegger signed the bill today! So the credit is now official.

The only thing standing in the way of a special California-only first-time home buyer tax credit right now is Gov. Schwarzenegger’s pen.

That’s because the legislature approved A.B. 183 earlier this week, which paves the way for a $10,000 credit for both first-time buyers and new home buyers. The governor has been a staunch supporter of the bill, so his signature should be a mere formality.

The credit is similar to the $10,000 new home-only tax credit that was introduced last March. All $100 million was gone by early July.

This time, the legislature allocated $200 million — earmarking $100 million to first-time buyers and another $100 million to new home buyers.

And this credit starts May. 1, right on the heels of the expiration of the federal tax credit.

The way this credit works is this:

1. Eligible California buyers get a credit equal to 5% of the purchase price or $10,000, whichever is less. (As long as the house sells for $200,000+ the credit is $10k).

2. The credit is divided in thirds. You can take 1/3 of the credit for each of the next 3 tax years (so a max of $3,333/year).

3. You must purchase (close escrow) between May 1-Dec. 31, but as long as you’re in contract by the end of the year, you can close escrow all the way up to July 31, 2011.

4. The credits will be allocated on a first-come/first-served basis. Once all the funds have been committed, other eligible buyers will go on a waiting list.

5. If a first-time buyer purchases a new home, the credit will come out of the new-home-buyer pool.

6. The credit can only be used to offset actual taxes. So if your state taxes are less than the amount of your credit, you’ll only be able to use the amount equal to your state income tax. And you can’t carry over unused portions of the credit to subsequent years.

7. Eligible buyers must submit a copy of their closing statement and a certification that they’re either a first-time or new-home buyer within 2 weeks of the close of escrow. The credit isn’t awarded until the state Franchise Tax Board confirms that the buyer is eligible and funds are still available.

Unlike the Federal Tax Credit, which was available for every American who qualified, the state’s program is only available as long as funds are available.

So if last year’s new-home buyer credit is any indication, this could be another case of the early bird getting the worm.

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This entry was posted on Wednesday, March 24th, 2010 at 11:19 pm and is filed under Buying. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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