The California Legislature passed legislation ( Bill number AB 183) establishing a new home-buyers tax credit, which the Governor has signed. California had previously passed a similar credit last year, but funding was limited to $100 million and was on a first come first served basis, and funds ran out last summer. The previous tax credit was limited to new construction, however the new credit can be used by first time home-buyers for new or existing homes or by other home-buyers for new homes.
The home-buyer tax credit begins May 1 and provides a $200 million pool of money to be split equally between first-time home-buyers and buyers of new homes. The following are some details of the credit:
1)The credit is equal to 5% of the homes purchase price, up to a maximum of $10,000.
2)The home buyer must live in the home for at least 2 years.
3) Homes must be purchased outright or under an enforceable contract by Dec. 31 2010( and must close by August 1, 2011 )
4) Homebuyers must spread the amount of the allowable credit equally over three tax years, applying it against what they owe the state. ( Note that unlike the Federal home buyer tax credit, this is not a "refundable credit" and is only effective to the extent that the taxpayer owes state taxes). If the available credit exceeds the current year net tax, the unused credit may not be carried over to the following year.
5) The home purchased must be a Qualified principal residence. "Qualified principal residence" means a single-family residence, whether detached or attached, that is purchased to be the principal residence of the taxpayer, is eligible for the homeowner's exemption under Section 218, and has either never been occupied or is purchased by a first-time home buyer. The Franchise Tax Board defines "single family residence " as any of the following: a single family residence, a condominium, a unit in a cooperative project, a houseboat, a manufactured home, or a mobile home.
6) "First-time home buyer" means any individual, or individual's spouse, who had no present ownership interest in a principal residence during the preceding three-year period ending on the date of the purchase of the qualified principal residence.
7) A taxpayer may, but is not required to, reserve a credit prior to close of escrow for the purchase of a qualified principal residence . To reserve a credit, the taxpayer and seller shall jointly sign and submit to the Franchise Tax Board a certification that they have entered into an enforceable contract. Since the funds will be allocated on a first come first served basis, it will be important to submit a reservation request right when a contract is executed, as you do not have to wait until the close of escrow.
9) For unmarried individuals or spouses filing separate returns, the tax credit may be allocated to each of the owners in proportion to their ownership interest.
10) No credit shall be allowed unless the taxpayer submits to the Franchise Tax Board, within two weeks after the date of the purchase of the qualified principal residence,a copy of the properly executed settlement statement and either one of the following:
(A) If the qualified principal residence has never been occupied, a certification by the seller, made under penalty of perjury, that the residence has never been previously occupied.
(B) If the qualified principal residence is purchased by a taxpayer who is a first-time home buyer, a certification from the taxpayer, made under penalty of perjury, that he or she is a first-time home buyer.
This tax credit comes at an opportune time as the $8,000 Federal tax credit expires April 30th.
For more information about income taxes and real estate, see Income Tax Issues .
**NOTE: The information contained at this site is for educational purposes only , and although believed to be accurate, it is not intended for any particular person or circumstance. A competent tax professional should always be consulted to verify the information presented and before utilizing any of the information contained at this site.**
Comments(2)