Governor Arnold Schwarzenegger signed Assembly bill 183 designed to kick-start California real estate sales during the all important spring season when home sales get into high gear. Determined to encourage home ownership and at the same time promote job creation, the Governor signed the $200 million bill to provide new and first time homeowners with a tax credit that could reach as high as $10,000.
A previous program with a $100 million cap on the 2009 tax credit was successful, but the cap came before many interested homebuyers were able to take advantage of the government assistance program.
Assembly Bill 183, signed into law on March 25, applies to buyers of new homes and first-time homebuyers of existing homes with sales contracts signed between May 1, 2010 and December 31, 2010 and closing escrow no later than Aug. 1, 2011. With action that must be taken by both buyers and sellers, the new program will allow buyers to receive a tax credit of 5% of the home’s purchase price up to $10,000, spread equally over three consecutive tax years. To qualify, the homeowner must use the property as a principal residence for two years after the closing of escrow.
There is no income restriction in the new program, but buyers will need to reserve the tax credit in advance of the closing date to assure that funds remain in the program. Buyers and sellers will need to jointly sign and submit a notice that they have entered into a sales contract between May 1 and December 31, 2010 to the California Franchise Tax Board. If approved, the buyer will be notified by the FTB and the buyer will then be required to finalize the credit deal by providing more information to the Tax Board to actually obtain the credit. The reserve provision in the new program is a new feature that was not present in the 2009 tax credit. That program, which allowed a federal tax credit of $8,000 will expire on April 30, 2010. Assembly Bill 183’s provisions begin on the date following the old program, May 1.
The bill is a part of the Governor’s California Jobs Initiative which he proposed in the State of the State address in January. “I have been up and down the state pushing this important housing bill that will get people off the fence and into homes while creating jobs and stimulating our economy,” the Governor said.
While the bill is good news for homebuyers, it remains contentious in the budget deficit facing California this year. The hope is that the tax credit will encourage real estate sales in the state and create jobs that will end up as revenue for the state. But with the huge deficit, and the need to support the homebuyer tax credit, the Governor also cut $1.1 billion from mass transit by diverting gasoline tax money to pay down the $20 billion shortfall. It has been reported that $400 million will be retained for public transit expenditures-hard to believe, but with the support of transit agencies. They figured that this would be a better deal than the complete elimination of state funding that Governor Schwarzenegger had initially proposed.
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