Tax Credit

California State Tax Credits for First Time Buyers and New Homes

Many home buyers were rushing in the last days of June to close escrow and qualify for the federal tax credit of $8,000 for first-time home buyers and $6,500 for repeat home buyers. If you were one of many buyers who were under contract on a home purchase by April, 30 2010, and waiting to close escrow, you still have hope. The U.S. Senate has passed a 3 month extension to allow buyers additional time to close, moving the deadline to close escrow to September 30, 2010. However, if you’ve missed these deadlines, you’re not out of luck, you may qualify for a California State Tax credit.

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.

Tax Credit

$8,000 Tax Credit for First Time Buyers (2009)

Update: The $8,000 federal tax credit for first time buyers is still available in 2010, but only if you entered into a contract on or before April 30, 2010. The new deadline for closing escrow is now September 30, 2010, a full 3 month extension from the original June 30 deadline. Repeat home buyers also will still qualify for the federal $6,500 tax credit as long as they have entered into a contract on or before April 30, 2010.

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.