California State Tax Credits

In addition to the federal tax credit, the California Franchise Tax Board (FTB) is offering tax credits of its own to first-time home buyers and new home buyers in 2010. California has set aside a fund of $100 million for first-time buyers, and another $100 million for new home buyers. Those who qualify in both categories will receive their tax credit from the new home buyer fund, which is expected to last longer.

Even though the CA tax credits are still available, time is running out. As of June 29, 2010, the first-time buyers fund is estimated to have reached almost $106 million. The new home buyers fund is estimated to have reached $50 million. As a first-time home buyer, you still have additional time if you are purchasing a new home. These figures are only estimates, as the California Franchise Tax Board assumes that there have been multiple duplicates sent in, and continue to accept up to 28,000 applications (currently at 20,760) until further notice.

The amount of tax credit you can receive is equal to 5% of the purchase price or $10,000, whichever amount is less. It must be applied over 3 successive tax years, with a maximum of $3,333 per year. They are nonrefundable and cannot  be carried over.

To qualify for these tax credits, a buyer must have completed a purchase of a qualified principal residence on or after May 1, 2010, and before January 1, 2011. As long as escrow closes on or after May 1, 2010, you qualify, even if you entered into a contract before that date. For the purposes of both tax credits, a “qualified principal residence” is defined as:

1. A single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been “purchased.”
2. Be eligible for the California property tax homeowner’s exemption.
3. Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.
4. NEW HOME ONLY: Have never been occupied. Sellers must certify that the home has never been occupied in order for a taxpayer to receive an allocation of the credit.

You are NOT eligible for these tax credits if any of the following apply:

• The taxpayer was allowed a 2009 New Home Credit.
• The taxpayer is under 18 years old. (A taxpayer who is married as of the date of purchase will be considered to be 18 if the spouse/registered domestic partner (RDP) of the taxpayer is 18 or older on the date of purchase.)
• The taxpayer or the taxpayer’s spouse/RDP is related to the seller.
• The taxpayer qualifies as a dependent of any other taxpayer for the tax year of the purchase.

New home buyers are also allowed to make a reservation on a New Home Tax Credit if they have entered into a contract on or after May 1, 2010, and on or before December 31, 2010.

The following steps must be taken to apply for the tax credits. Applications are accepted by fax only.

Within two weeks (14 calendar days) after the close of escrow:

• The seller must complete Parts II, III, and also Part IV (if the home has never been occupied) of Form 3549-A, Application for New Home / First-Time Buyer Credit, and provide a copy to the buyer or escrow person.
• The buyer will complete Parts I, V & VI of Form 3549-A.
• Fax the completed Form 3549-A and the final settlement statement (generally the buyer’s HUD-1 statement) to FTB at 916.855.5577.

California FTB recommends that the escrow company, on behalf of the buyer, fax the completed application and settlement statement to FTB and provide a copy to the buyer. The buyer retains ultimate responsibility to ensure the completed application and settlement statement are submitted timely to the FTB.

After applying, to claim the tax credit, you must have received a Certificate of Allocation from FTB.

An important thing to note: Special rules apply to married/registered domestic partner taxpayers filing separately, in which case each spouse/registered domestic partner is entitled to one-half of the tax credit, even if their ownership percentages are not equal. For 2 or more taxpayers who are not married/RDP, the tax credit amount will have already been allocated to each taxpayer occupying the residence on their respective tax credit allocation letter.

Please see http://www.ftb.ca.gov/individuals/new_home_credit.shtml for more details.

Good luck to all the first-time and new home buyers out there! And remember to always contact your CPA about any tax questions as we’re not tax professionals.

1. You or your spouse must be 55 or older when the original property sells.
2. Your new property must be your principle residence.
3. Both properties must be eligible for the homeowners’ exemption or disabled veterans’ exemption.
4. The market value of the new property must be lower than the original property. Only 1 to 1 exchanges are allowed. Even if only a partial interested in the new property is purchased, the whole property value will be used for this test.
5. The original property closing date must differ from the construction completion or purchase date by two years or less. You can purchase the new property before selling the original property and vice-versa.
6. You must file within 3 years of purchasing your new property.

This is only a one-time benefit and if you transfer between two counties, make sure the county your new home resides in accepts intercounty transfers. As of the time of this blog article, only Alameda, Orange, San Mateo, Ventura, Los Angeles, San Diego, Santa Clara counties allow this type of transfer. Please check with the county you’re moving to verify. I have personally worked with clients transferring their taxes to their new Pasadena and Arcadia homes but every situation is different so please check with your tax accountant or appropriate professional for more information about your particular situation. For more information online, please see this site.

1.    Presentation – Cleaning, Staging, General Home Preparation
The bottom line is buyers are more picky and more busy than ever. They want the perfect home without having to do much work on it. Most people these days have more responsibilities than hours in the day so the majority of buyers will want something move-in condition or something close. So…Condition matters!

Before you even put your home on the market, you should review the condition of your home. The easiest things you can do to make your home more appealing to today’s buyers are also some of the cheapest: de-cluttering (free), new paint (you can do it yourself), and new carpet (try to get remnant pieces if possible). Other things you can possibly do are landscaping, staging, new fixtures, etc.

It’s impossible to write a comprehensive guide to preparing a home for sale but my general suggestion is to make the worst things better before making the acceptable things even better.

Bottom line: If your home requires your buyer to use any imagination at all, you are leaving money on the table.

2.    Availability to Show
One huge mistake I see sellers make is making their property difficult to show. On some listings, I see agent comments like “Please show between 9am-1pm on Saturday and Sunday”. Limiting your showing availability lowers your visibility and may ultimately cost you a sale or limit the amount you sell for.

Every single buyer has a different schedule and a preferred time of showing. By limiting times of showings you’ve reduced the number of possible buyers for your home. I have worked with buyers who were not able to view certain homes that were otherwise perfect for them because of showing restrictions. Guess what? They eventually bought something else.

Bottom Line: Think of putting a limit on showings as the same as putting a limit your selling price.

3.    Pricing
Pricing your home incorrectly can limit your chances of a sale or limit your ability to achieve a good price. Pricing your home too high will do four things:

1. Limit your momentum coming onto the market.
2. Limit the number of buyers who even visit your property.
3. Limit your number of offers.
4. Prolong Your Days on Market.

Some of these negatives can’t be avoided even if you decide to do a price reduction later on so make sure you price your home carefully right from the start to capture the first two week rush of buyers. If you want more details on pricing your home correctly, see my upcoming blog post Pricing Your Home to Sell for the Most.

Bottom Line: Get professional help evaluating and pricing your home. Zillow is a fun tool, not a substitute for a real estate professional, just like WebMD is a good source of information, just not a substitute for a doctor.

The truth is, if you obey the rules above and you have the right strategy, your home should sell in weeks, not months. If you’re not selling or haven’t sold in that time frame, it may be time to re-examine your strategy. If you need help with your strategy, I am always willing to help and present some of my ideas and my comprehensive marketing plan.

A lot of ideas surround helping homeowners who are in default or already close to foreclosure. Some loan modifications and short sales even require that homeowners be delinquent on their mortgage payments before being eligible and by this time it can be already too late to keep an owner in their home.

The difference in this plan is that it targets responsible homeowners who have paid their mortgages on time for the past 12 months. By doing that, it targets homeowners who aren’t yet in trouble, making it more likely for a home to be saved. It also gives homeowners who bought in the past few years to upgrade to a fixed rate and a lower rate.

Another huge benefit of this refinance program is it allows up to 105% financing. Most people couldn’t refinance because they purchased their home 0% down or little money down or their home value dropped too much.

This plan is brand new (our lender just released the guidelines April 7th) so some of the information may change or vary but here are some of the main guidelines:

1. No Cash Out. If you’re looking to refinance cash out of your property, this won’t be allowed under this.
2. Moderately Good Credit, Past Payment History. This means your credit score must be over 620, no late mortgage payments for the past 12 months, no bankruptcy history within 48 months, and no foreclosure in the past 7 years.
3. Documentation. The documentation requirements are pretty lenient requiring only 1 month pay stub, a verbal verification of employment or a year’s worth of tax returns.

There are more rules and guidelines but if you meet the above qualifications and are interested in refinancing, contact me and I’ll personally walk you through the process.

Some people have been asking me about the recent $8,000 tax credit for first time home buyers and I thought I should address it here. If you are buying or will buy a home in 2009 as a first time home buyer (see below for definition), you will be eligible for an $8,000 tax credit that you will not have to pay back. This is part of Obama’s Recovery and Reinvestment Act and will replace the $7,500 credit that was previously in effect. So below are some of the qualifications necessary:

1. First Time Home Buyer Purchasing in 2009
A first time home buyer is defined as an individual or a couple who has not owned a home in the past three years. The purchase, or recording date needs to be between or on January 1, 2009 to December 31, 2009. If you’re not sure about the dates, contact your real estate professional, if you have one, or you can always contact me.

2. Income Under $75,000 for individuals and $150,000 for couples
Your taxable income must be under $75,000 if you file as an individual or $150,000 if you file as a couple. You are still eligible for the tax credit if your income is higher than that but it phases out quickly to $20,000 over the limit.

3. Primary Residence for 36 Months
The home you buy must qualify as a primary residence for 36 months following the purchase date or else the credit must be repayed.

These are just the basic rules for the law. If you need the form, you can download it here. Also, I’m not a CPA or tax expert so don’t rely on just this information. I have a really great tax planner if you need tax advice as well.

And in the real estate market’s current state, it’s now more important than ever to have a solid internet marketing plan as part of your overall marketing plan. With so many homes for sale, buyers simply don’t have the time to see the hundreds of homes on the market.

What are some ways a technology savvy real estate agent can use to help market your home?

1. Preparing the Home to be Showcased
Even though this isn’t high-tech, preparing your home for showings and pictures is essential for producing showings and eventually offers for your home. In today’s market, buyers are pickier than ever and expecting homes in the like-new condition. If you look at the closed sales, the ones that sell are the ones that are turn-key or in move-in condition. So before you even take a picture, talk with your agent about cleaning, painting, and staging your home to sell.

Below is an example of two very similar homes unstaged (home 1, top left), staged (home 1, top right), staged with a good photograph (home 2, bottom).

2. Photographs, Descriptions, and Virtual Tours
After your home is properly staged or prepared for showing, photographs should be taken, either by a professional photographer or by a realtor with a good, panoramic camera. A panoramic camera will be able to showcase entire rooms and will make the house bigger. So many times, there are beautiful homes on the market with poor photos. And no matter how spectacular your home is, if you have poor quality pictures or a lackluster description, a buyer might eliminate your home without ever stepping onto your property. Also work with your agent to describe the features you love about your house into a description that makes your home stand out. Lastly, virtual tours may also be a good option for showcasing your home but in some instances not having a virtual tour encourages buyers to visit the property instead of just see the virtual tour.

Below is an example of the staircases of the same two homes as above. Left is home 1 and right is home 2.

Below is a picture of the dining room of the two houses. Home 1’s dining room is actually staged better and looks better in real life.

3. Maximizing Exposure for your Home
Now that your home is featured in its absolute best light, it’s essential to get as many people to see it as possible. A technology savvy real estate agent should have a standard way of distributing information about your property online. First, I allow my listings to be sent through the MLS to hundreds of websites, including Coldwell Banker’s, Century 21’s, and Re/Max’s websites. My goal is to showcase my seller’s property to everyone I can, even to agents from other companies because they might just have a buyer for my client’s home. Second, I also have a constantly growing number of sites I submit to, in addition to those above, all to put your property in front of as many buyers as possible.

Although the tools above will help you gain more exposure for your home, internet marketing is not a comprehensive solution but should be used as a part of an overall marketing plan that includes traditional marketing ideas as well. Open houses, broker caravans, signs, and the real estate brokerage network are still vital to selling a home for the most money in this market.

2. Use Water-Saving Faucets, Showerheads, and Toilets – Free to $350+
Water-saving faucets, showerheads, and toilets can all help conserve water usage. Many cities now require faucets, toilets, and showerheads to conform to their water usage standards, with some even offer low cost solutions for homeowners. A water-efficient toilet can save between 8,000 to 18,000 gallons of water per year. And a water-saving showerhead alone can save up to 3,000 gallons of water, eliminate 1,000 lbs. in carbon dioxide emissions, and reduce your water bill by $50 per person per year.

3. Install a Water Heater Blanket, Lower the Water Temperature – $20
Traditional water heaters keep a large amount of water inside at a certain temperature, usually 140 degrees Fahrenheit. In order to reduce the amount of work required to keep hot water in the system, you can reduce the standard temperature to 130 degrees and install a water heater blanket. A water heater blanket wraps around the water heater to reduce heat loss by 25-40%. Be sure to keep important information regarding maintaining the water heater visible when you install one of these.

4. Change Your Air Filter – $10/filter
Dust and dirt that clog air filters can reduce their effectiveness and make your heating and cooling system work harder. A system with a clogged filter consumes more energy and has a shorter lifespan. Recommendations of how often to change your filter range from one month to three months depending on how often you use your air conditioning and heating system and how fast dust accumulates on the filter.

5. Programmable Thermostat – $40
Heating and cooling can be as much as half of your energy bills. A programmable thermostat that has multiple time settings can help you reduce your bills by turning off your heater or air conditioner while you’re at work and can reduce their usage during sleeping hours. This feature alone will help you reduce your heating and cooling bills by $150 a year.

6. Weather Stripping and Caulking Around Windows and Doors – $20-$50
Some older windows and doors don’t have proper weather stripping and some estimate that this can account for 46 percent of annual heat loss. Applying weather stripping and caulking around windows and doors can serve as a cost-effective way to keep your home cool in the summer and warm in the winter.

While these methods can help you conserve energy at your current home, you may want to put green features into considering when searching for your next home. If you need help locating an already green San Gabriel Valley home, you can always email me or visit my website.

My ultimate goal for this blog is to serve as an educational resource for learning about the basics of real estate, as a forum that addresses the pressing issues in real estate, a collection tips and guides for my clients and friends, a way to access monthly market updates for the cities I work in, a place to share client success stories, and a platform to present specific properties and real estate opportunities like up and coming homes for sale that are not yet on the market.

Specifically, I will be providing information about Arcadia real estate, San Marino real estate, Temple City real estate, Pasadena Real Estate, South Pasadena Real Estate, and real estate in surrounding areas.

I am always happy to receive to comments, suggestions, and requests no matter how small or large, so please email them to me at mark@markcheng.net.