Now that all the dust has settled, and IRS has clearly posted all information to the website Link to IRS page buyers can take a sigh of relief that the $8,000 first-time homebuyer credit will be sent out in it's entirety, as long as all the requirements are met. Any other refunds due to you as part of your filing will not be deducted from the $8,000 - as I wrongly stated in my previous blog.
IRS has modified the 5405 form to be used for the filing to include 2007 requirements as well as 2008 requirements. This makes very clear how the two programs differ and makes it easier to file an amended return after the close of the purchase transaction.
If you are buying your first home in the State of California, and are buying a newly built, not previously occupied home, you can benefit from CA's new home stimulus passed in the last Budget.
This allows for a $10,000 CA State tax credit. Unlike the Federal version this is not cash sent to you. The $10,000 credit is applied equally over a three year period to offset your CA liability to Franchise tax.
There are very detailed instructions on how application is to be made. You must follow them to the letter- or not get your credit:
How to apply
· Within one week (seven calendar days) after the close of escrow:
The seller must complete Part I of Form 3528-A, Application for New Home Credit, certifying that the home has never been occupied, and provide a copy to the buyer or escrow person.
The buyer will complete Parts II & III of Form 3528-A.
The escrow person on behalf of the seller and buyer will fax the completed Form 3528-A to FTB at 916.845.9754, and provide a copy to the buyer.
Fax is the only delivery method that will be accepted and considered for credit allocation by FTB, as the date and time stamp on the fax will determine the order in which credits are allocated.
- Fax only one completed application per residence with all qualified buyers listed. Do not include information on non-qualified buyers. An incomplete application may delay or prevent credit allocation.
- Do not fax the application to FTB before escrow closes.
- Do not fax the application to FTB more than once. We will process the applications in the order received as quickly as possible.
- Escrow companies should only send one application per fax transmission.
- The buyer keeps a copy of the completed Form 3528-A for their records.
Application processing
The buyer will receive notification of credit allocation from Franchise Tax.
An allocation of credit will not be issued if:
The home has been previously occupied.
The application is not received within one week after the close of escrow.
The application is received after the total credits available ($100,000,000) have been allocated.
Additional information on how to claim the credit can be found by going to the web link. Franchise Tax Link- FTB credit - instructions
This credit is not refundable.
This means that the credit will offset any taxes you owe the State after taking all deductions. If your remaining tax liability is Zero - and you get 100% back, you will not get any additional money over and above what you already paid to the State as part of your employer's withholding.
If after all your deductions (write offs) you still owe, then if you owe less than $3,333.33 every penny will be forgiven. If you owe more than $3,333.33 then you will only have to send a check to Franchise Tax for the difference.
Although this sounds like a big boost for first time home buyers, this really benefits only the highest income earners.
Take a look at your State returns for 2008. Do you owe money to CA this year? Or, are you getting your deposited funds back?
If you are getting them back now, this legislation will do nothing for you. OK, you are not getting 100% refund. Now what?
It's time to do some math. Take the interest you expect to pay on your loan, ad to that the property taxes that you will pay. Now deduct from your gross taxable income ... check the chart to see how much you would owe. Chances are that you will still get all your funds returned - without touching the potential $10,000 credit. (This was is a quick formula. Ask your accountant about other deductions that may be available.)
Please note the above are my opinions and not to be considered tax advice. It is always best to see an accountant, or tax preparer.
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