Tiffany Osterli, REALTOR® - Bringing Your Dreams Home

Yuba City, Marysville, Plumas Lake, Sutter, Live Oak, CA Real Estate and Homes for Sale

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California's New Home and First-Time Homebuyer Tax Credits
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Information About California's State Income Tax Credits for First-Time Homebuyers and New Home Purchases

 

On March 25, 2010, Governor Schwarzenegger signed Assembly Bill 183 (AB 183), establishing two California homebuyer tax credits for 2010 similar to the one for 2009.   The bill allocates $200 million for tax incentives of up to $10,000 for California taxpayers who are either first-time homebuyers or who purchase a new (never occupied) home in California between May 1, 2010 and December 31, 2010.  Important Update: As of August 16, 2010, the Franchise Tax Board is no longer accepting applications for the state's first-time homebuyer tax credit because the funding allocated for this tax credit has been exhausted.  The new home purchase tax credit deadline is still December 31, 2010.  The $200 million is allocated evenly between the first-time buyer and the new home tax credits.  If claimed, the credit will be applied as three equal credits to a taxpayer's personal income tax returns over a three-year period (up to $3,333.33 per year).  See below for more information.
 

 

 
 
NEW HOME TAX CREDIT
 
What is California's new home tax credit?

It is a credit that can be claimed on one's California personal income tax return by a taxpayer who purchases a new home in California (where 'new' is defined as never lived in) as a principal residence between May 1, 2010 and December 31, 2010.  The credit will reduce a person's tax liability over three years by the lesser of 5 percent of the purchase price or $10,000.  New homes purchased for $200,000 or more qualify for the full $10,000 credit ($3,333 per year for three years).  New homes purchased for less than $200,000 qualify for the 5 percent credit (1/3 of 5 percent of the purchase price per year for three years).

Do I qualify?

To qualify for the California New Home Credit, the following conditions must be met:

  1. The home you purchase must be new (defined as never having been occupied).
  2. You must be at least 18 years old at the time of the purchase.
  3. You must not have claimed and received the 2009 California New Home Credit.
  4. Neither you nor your spouse (if married) may be related to the seller.
  5. You cannot be eligible to be claimed as a dependent on someone else's tax return.
  6. The home you purchase must be a single-family residence.  Note: The home must be purchased.  You do not qualify if you build your own home, because you would not have "purchased" it.
  7. You must intend to occupy the home as your principal residence for at least two years immediately following the purchase.
  8. Within two weeks of the close of escrow, you must apply for and receive from the Franchise Tax Board notification of an allocation from the $100 million reserved for the credit.

Some important things to consider:

  • If you claim the credit, but sell the home without occupying it as your principle residence, you will be liable for the taxes that you would have otherwise paid if you had not claimed the credit (and possibly penalties and/or interest).
  • The total amount of credit that the state will allow to be claimed for new home purchases is capped at $100 million.  If a taxpayer is eligible for both the New Home Credit and the First-Time Homebuyer Credit, the law requires that he/she be allocated the New Home Credit.  If you want to claim this credit, don't wait and assume you can buy your home anytime before December 31, 2010 - it could be too late.  In fact, the 2009 credit ran out just months after it took effect, well before the deadline.  The law does provide that the buyer may reserve the New Home Credit by submitting a request prior to the close of escrow.  The reservation request must be signed by both the buyer and the seller, indicating they have entered into an enforceable purchase contract.  Contact the Dream Team today to get your home search started and ensure you are eligible for the credit.
  • The seller will be required to certify that the home has never been previously occupied.  In most cases the seller will either be the home builder or a bank.  If you intend to claim the credit, make sure your real estate agent is aware so that the required occupancy documentation can be gathered from the seller prior to close of escrow.  You will only have two weeks from the close of escrow to submit your application for the credit along with a certification by the seller that the home has never been occupied.

How can I benefit from this credit?

The state's new home tax credit is intended to stimulate California's economy and create new jobs by encouraging home builders to build more new homes in California and by saving taxpayers money on their taxes that they will hopefully put back into the economy through increased spending.  If you are in the market for a home and plan to occupy it as your principle residence, you can save money on your state income taxes by purchasing a new home by December 31, 2010 and claiming this credit on your California personal income tax return.  Please note: Because everyone's tax situation is unique and the state has capped the total credits it will allow to be claimed, we cannot guarantee the availability or amount of your tax credit or how it will affect the amount of taxes you owe or the size of your tax refund.  Please consult a qualified tax professional to determine the impact of the credit on your tax situation.


FIRST-TIME HOMEBUYER TAX CREDIT
 
What is California's first-time homebuyer tax credit?

It is a credit that can be claimed on one's California personal income tax return by a first-time homebuyer (taxpayer who has not owned a home in the last three years) who purchases a home in California as a principal residence between May 1, 2010 and December 31, 2010.  The credit will reduce a person's tax liability over three years by the lesser of 5 percent of the purchase price or $10,000.  New homes purchased for $200,000 or more qualify for the full $10,000 credit ($3,333 per year for three years).  New homes purchased for less than $200,000 qualify for the 5 percent credit (1/3 of 5 percent of the purchase price per year for three years).

Do I qualify?

To qualify for the California First-Time Homeowner Credit, the following conditions must be met: 

  1. Neither you nor your spouse (if married) owned a home as a principal residence in the three years immediately preceding the purchase.
  2. You must be at least 18 years old at the time of the purchase.
  3. You must not have claimed and received the 2009 California New Home Credit.
  4. Neither you nor your spouse (if married) may be related to the seller.
  5. You cannot be eligible to be claimed as a dependent on someone else's tax return.
  6. The home you purchase must be a single-family residence.  Note: The home must be purchased.  You do not qualify if you build your own home, because you would not have "purchased" it.
  7. You must intend to occupy the home as your principal residence for at least two years immediately following the purchase.
  8. Within two weeks of the close of escrow, you must apply for and receive from the Franchise Tax Board notification of an allocation from the $100 million reserved for the credit.

Some important things to consider:

  • If you claim the credit, but sell the home without occupying it as your principle residence, you will have to pay the taxes that you would have otherwise paid if you had not claimed the credit.
  • The total amount of credit that the state will allow to be claimed by first-time buyers is capped at $100 million.  If a taxpayer is eligible for both the New Home Credit and the First-Time Homebuyer Credit, the law requires that he/she be allocated the New Home Credit.  Therefore, if 10,000 people were to buy new homes and claim the maximum credit, anyone else subsequently claiming the credit would not be able to, even if they meet all other eligibility requirements.  If you want to claim the first-time homebuyer credit, don't wait and assume you can buy your home anytime before December 31, 2010 - it could be too late.  In fact, the 2009 credit ran out just months after it took effect, well before the deadline.  Contact the Dream Team today to get your home search started and ensure you are eligible for the credit.
  • Unlike the New Home Credit, the First-Time Homebuyer Credit may not be reserved prior to close of escrow.

How can I benefit from this credit?

The state's first-time homebuyer tax credit is intended to stabilize and stimulate the California housing market by encouraging Californians who have not owned a home for at least three years to invest in a home.  The credit will save taxpayers money that they will hopefully put back into the economy through increased spending.  If you have not owned a home in the past three years and are in the market for a home that you plan to occupy as your principle residence, you can save money on your state income taxes by purchasing by December 31, 2010 and claiming this credit on your California personal income tax return.  Please note: Because everyone's tax situation is unique and the state has capped the total credits it will allow to be claimed, we cannot guarantee the availability or amount of your tax credit or how it will affect the amount of taxes you owe or the size of your tax refund.  Please consult a qualified tax professional to determine the impact of the credit on your tax situation.


For more information on these important state tax credits for homebuyers, visit the
Franchise Tax Board's 2010 Homebuyer Tax Credit page.

Click here to read the full text of AB 183 (the bill that created the tax credits).  (Requires Adobe® Reader® v 5.x or higher.  If you do not have Adobe® Reader®, you may click on the button below to download it for free from Adobe®).

Contact The Dream Team today for more information on buying a home in the greater Yuba-Sutter or Sacramento areas.

Click here for information on the $8,000 federal first-time homebuyer tax credit.

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