The state Legislature approved and Gov. Schwarzenegger signed into law in March a homebuyer tax credit for California. Here’s what you need to know about the program.
How much is the tax credit?
The homebuyer tax credit is for up to $10,000 or 5 percent of the purchase price – whichever is less – for the purchase of a newly constructed, previously unoccupied home. There is also a tax credit of up to $10,000 for the purchase of an existing home by a first-time homebuyer.
How much money is available in funding for the program?
There is a $200 million allocation for the entire program, divided evenly between the two parts. In other words, $100 million is authorized for new construction and $100 million for existing home purchases by first-time homebuyers.
When does the tax credit begin?
The program starts May 1 and will run until the end of the year or until funding runs out, whichever comes first. A similar program in 2009 lasted less than four months before the funding was exhausted.
How does a homebuyer qualify?
Once a customer signs a contract to purchase a home, they are allowed to reserve a tax credit provided the contract is entered into on or after May 1. The state’s Franchise Tax Board (FTB) allocates the credits on a first-come, first-served basis. The homebuyer may submit a certification to the FTB upon entering into a sales contract, and must submit a properly executed settlement statement to the FTB within two weeks of close of escrow. In order to receive the tax credit, escrow must close no later than Dec. 31, 2010, unless a credit has been reserved prior to that date, in which case the home must close escrow before Aug. 1, 2011.
How does the program work?
The tax credit is paid out in equal parts over a three-year period (i.e. $3,333 for 2010, $3,333 for 2011, $3,333 for 2012). Purchasers must reside in the home for at least two years. There are no income limitations to be met by purchasers, and there is no repayment requirement unless the purchaser sells, rents out or moves out of the home before two years expire.
What about the federal homebuyer tax credit?
Unless Congress and the President choose to extend the current federal program, it will end April 30, the day before the state program begins.
How will customers know if there is still funding available?
The FTB will track and publish that information on its website at www.ftb.ca.gov. The FTB website will also have more information and all the necessary forms homebuyers will need.