It’s not too late for Californians to purchase a home and still reap the benefits of generous tax credits. Although the Federal tax credit expired at the end of April, California homebuyers can take advantage of a new $10,000 State tax credit program which begins on May 1, 2010 and expires December 31, 2010. The program is available to first time homebuyers and can be used on a new home or resale purchase.
Following is an overview and FAQs. For more information, visit the official website on the new home buyer tax credit.
- California plans to spend around $200 million dollars to fund this tax credit.
- This is twice as much funding as the state’s previous home buyer tax credit, which was rolled out in March 2009 and exhausted by July 2009.
Who is eligible?
- The home buyer must be a California taxpayer.
- There is no limit on the income of the home buyer.
- The program is available to both existing homeowners and first-time home buyers.
- Current homeowners are eligible only if they buy a newly-built home.
- First-time home buyers are eligible whether they buy a newly-built or existing home.
To be a first time home buyer, you cannot have owned a home anywhere in the world during the three years prior to buying your new home. If you’re married, that applies to your spouse as well.
How much is the credit worth?
- The tax credit is worth up to 5% of the purchase price of the home, or $10K, whichever is less.
How does the home buyer receive the tax credit?
- The payment is credited against the home buyer’s annual CA state income tax.
- The total payment will be spread evenly over three years.
- If you qualify for the full $10K, you’d get up to $3,333 per year – but only if you pay at least that much in annual CA state income tax.
If your CA state income tax is $4,000 a year, you get a $3,333 credit against that amount, effectively lowering your state income tax to $667.
If you owe less than $3,333 per year in CA state income tax, you’ll receive a tax credit only for that amount. The extra will not roll over into the following year’s payment.
The credit will begin to be applied to the tax year in which the home was purchased. If you buy your home in 2010, the tax credit will begin to be applied against your 2010 taxes.
You cannot apply the tax credit to your 2009 taxes, even if you file your 2009 taxes after you purchase your home.
What’s the deadline for claiming the credit?
Buyers of existing homes must close escrow between May 1 and December 31, 2010.
Buyers of new homes can either:
- Close escrow between May 1 and December 31, 2010, or…
- If they are unable to close escrows during that time, they can reserve a credit by entering into an enforceable contract between May 1 and December 31. They must then file the proper paperwork with the tax board and close escrow by August 1, 2011.
What types of homes are eligible?
- Eligible home types include:
- Single family homes
- Units in a cooperative project
- House boats
- Manufactured homes
- Mobile homes
- There is no price limit on the home purchase.
- A home constructed by the taxpayer is not eligible, since the home has not been “purchased.”