New state legislation providing $200 million in new home buyer tax credits for California home buyers begin May 1, a day after the expiration of the federal home buyer tax credit on April 30. This year's state home buyer tax credit is distinctly different from last year's state home buyer tax credit and the current federal home buyer tax credit, but it is certain to provide a boost to California's economy, according to Jeff Bell, president of the Silicon Valley Association of REALTORS®.
"The state's new home buyer tax credit will continue the pace of California's housing recovery, which was helped by last year's state home buyer tax credit and the federal home buyer tax credit, which deadlines on April 30," said Bell. "Interest rates are still low and the state tax credit will be an added incentive for home buyers to purchase homes, which will in turn stimulate the economy by creating new jobs and housing-related services in our state."
The state's new tax credit allocates $100 million for qualified first-time home buyers of existing homes and $100 million for any qualified home buyer towards the purchase of new or previously unoccupied homes. There are two different types of qualifying purchases: single-family residence purchased by a first-time home buyer (taxpayer who has had no ownership interest in a principal residence in the last three years); and new single-family residence (home which has not been previously occupied) by repeat home buyers.
Another big difference in the FTB administrative rules for this year's state credit is the removal of a requirement to reserve the credit prior to the close of escrow. Reservations are only allowed, but not required, for new home purchase transactions entered into contract after May 1. Transactions entering into contract before May 1 may still qualify for the state credit if they close escrow after May 1 and funds are still available for an allocation.
"It is possible to qualify for both the federal and state home buyer tax credits by entering into a contract before April 30 and closing escrow between May 1 and June 30, 2010, but it is important to be aware of the distinct differences in qualification, price and income limits between the federal and state home buyer credits," Bell said. "Buyers interested in taking advantage of these incentives must act soon and contact a professional and experienced REALTOR®. We also advise buyers to consult a tax advisor with regard to any decision pertaining to the federal and state home buyer tax credits."
Here is brief overview of the state tax credit rules released by the California Franchise Tax Board (FTB):
• State tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1, 2010, and before January 1, 2011 (the purchase date is defined as the date escrow closes). If funds are still available, additional New Home Credit can be allocated for taxpayers who purchase a qualified principal residence on or after December 31, 2010, and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010.
• State tax credits are limited to the lesser of 5 percent of the purchase price, or $10,000 for a qualified principal residence.
• Taxpayers must apply the total tax credit in equal amounts over three successive tax years (maximum of $3,333 per year), beginning with the tax year in which the home is purchased. The tax credits cannot reduce regular tax below tentative minimum tax (TMT). The tax credits are nonrefundable and unused credits cannot be carried over.
• The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit.
• Only one state tax credit is allowed per taxpayer. If a taxpayer qualifies for both of the state tax credits, the law specifies that the amount will be allocated under the New Home Credit.
• Applications must be submitted to the FTB no more than 14 calendar days after escrow closes. The new application will be available by May 1, 2010. The FTB will deny the application if the 2009 form is used or if they receive the 2010 application before May 1, 2010. Applications will not be accepted once the total tax credits available have been allocated.
• Taxpayers allocated a 2009 New Home State Credit, minors, dependents, or buyers that are related to the seller are not eligible for the credit.
• FTB's determination of the qualified taxpayers or allocations may not be protested or appealed.
• The taxpayer must receive a Certificate of Allocation from the FTB to claim the tax credit on their California personal income tax return.
New Home Credit: Eligible residences must be a single family residence (detached or attached) that has never been occupied. The sellers must certify that the home has never been occupied. The property must be eligible for the California property tax homeowner's exemption, and be occupied by the taxpayer as their principal residence for a minimum of two years immediately following the purchase. Taxpayers who qualify for the New Home Credit may, but are not required to, reserve a tax credit prior to the close of escrow. Reservations will become important as we near the $100 million cap for homes that may not close escrow before the cap is reached. To reserve a tax credit, the taxpayer and seller need to complete, sign, and submit to us a reservation request to certify that they have entered into an enforceable contract on or after May 1, 2010, and on or before December 31, 2010. A copy of the signed contract must be included with the reservation request.
First-Time Buyer Credit: Eligible residences must be a single family residence (detached or attached), be eligible for the California property tax homeowner's exemption. The taxpayer must maintain the purchased home as their principal residence for a minimum of two years. A first-time buyer is any individual (and the individual's spouse/RDP, if married) who did not have an ownership interest in a principal residence during the preceding three-year period ending on the date of the purchase of the qualified principal residence. Taxpayers applying for the First-Time Buyer Credit will not be able to reserve the tax credit before escrow closes.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.