California $10,000 Homebuyer’s Tax Credit - Another View Point

By
Real Estate Broker/Owner with brokerforyou.com CA Lic#00706331

If you are ostensibly bankrupt, does a $10,000 credit sound like good news? You bet. Unless of course you are the state government that is exhibiting all signs of bankrupt status and you are giving away another home buyer’s credit to homeowners in the state.

The CA governor has signed another home buyer’s credit bill which doesn’t make a whole lot of sense for CA from a financial standpoint. The new (some say extension of the 2009 new home credit) bill, AB 183 will provide $200 million for home buyer tax credits, allocating $100 million for qualified first-time home buyers of existing homes and $100 million for purchasers of new, or previously unoccupied, homes. The eligible taxpayer who purchases a qualified personal residence on and after May 1, 2010, and on or before Dec. 31, 2010, or who purchases a qualified principal residence on and after Dec. 31, 2010, and closes the sale before Aug. 1, 2011, will be able to take the allowed tax credit.

The credit is equal to the lesser of 5 percent of the purchase price or $10,000, in equal installments over three consecutive years. Purchasers will be required to live in the home for at least two years or forfeit -repay the credit. (Before acting on this preliminary information for the tax credit, one should first consult your legal/tax professional.)

California has a $20.7 billion deficit in the general fund budget over the next 16 months and owes $8.8 billion in short-term loans that have to be paid off by June. There is an additional $120-plus billion in outstanding bonds and interest that will be paid over decades. The state’s pension fund, CalPers, has $16.3 billion more in liabilities than assets plus California also faces a $51.8 billion for the health and dental benefits of state retirees and future retirees. In truth, California has the lowest credit rating of any state in the nation, just above junk bond status. One major problem is the rise in California’s debt-service ratio (DSR). That is, the ratio of annual general fund debt–service costs to annual general fund revenues and transfers. This is often used as one indicator of the state’s debt burden. The higher it is and more rapidly it rises, the more closely bond raters, financial analysts, and investors tend to look at the state’s debt practices, and the more debt–service expenses limit the use of revenues for other programs. Debt servicing is projected to comprise 9% of general fund revenues by the end of 2014-15. According to Bloomberg News, the market believes a developing country like Kazakhstan, with about 15.7 million people, is less likely to default on its debt than California, which is the eighth largest economy in the world.

Most people who have no cash and a bucket full of financial woes don’t go around doling out promises of money. Why is CA for doing it? Naturally as a Realtor ... give people money for buying homes is great! As a California tax payer, I have to believe this is another give away the state cannot afford!

Read more of my 'tell it like it is' real estate opinions & subscribe to his free RSS feed at: San Diego California housing market blog.

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Rainer
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Tiffany Torgan
Harcourts Prestige Properties of La Jolla - La Jolla, CA
Featured on HGTV's New Show! How Close Can I Beach

Great post thanks for the info on the California tax credits. I think I had read somewhere (maybe it was from CAR) that this month certain buyers will be able to get both state and federal tax credits.

Apr 07, 2010 04:54 AM #1
Rainer
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Joe Hansen
Joe Mortgage - Precision Mortgage Inc. - Phoenix, AZ
Joe Mortgage Team

It's hard to be in this business and point out that tax credits for buying homes is not a great idea.  I think the market needs to run it's natural course and yes when these credits are given everyone pays for it. Well, that is unless the government is just printing up the money "like they have been doing lately"  Thanks for the post. 

Apr 07, 2010 06:22 AM #2
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Rainmaker
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