With the signing into law of Assembly Bill 183 at the end of March, California has revived and expanded the homebuyer tax credit program that ended last July. For transactions that close escrow on or after May 1, 2010, Californians who are first-time homebuyers or who purchase a newly-constructed home are in line for a significant credit on their upcoming State income tax returns.
As discussed more thoroughly on the Franchise Tax Board’s website and in FTB Publication 3528, the new legislation offers an income tax credit in an amount equal to the lesser of $10,000 and 5% of the purchase price of a qualifying home purchase, applicable over a 3-year period. So for example, a $500,000 qualifying home purchase would allow the typical qualifying homebuyer/taxpayer a $3,333 income tax credit on each of their 2010, 2011 and 2012 California income tax returns. Among the many qualification requirements and limitations are the necessity for closing to occur between May 1, 2010 and December 31, 2010, and the fact that only $200 million is allocated to the tax-credit program ($100 million to qualifying first-time homebuyers and $100 million to qualifying buyers of newly-built homes) – available on a first-come, first-served basis.
The New California Credit is not to be confused with the soon-to-expire Federal homebuyer tax credit. If homebuyers act very quickly, they may be able to benefit from both the new California credit and the Federal credit, providing up to an impressive $18,000 in income tax credits under the right circumstances. Qualification for the Federal credit – which does not have the “newly-constructed home” component of the California legislation, but is available to certain non-first-time buyers (at a maximum of $6,500, rather than the $8,000 maximum available to first-time buyers) – requires that a binding purchase contract be in place by April 30, 2010, and that closing occur by June 30, 2010. For details on these and other aspects of the Federal credit, see IRS News Release 2009-108.
Scott M. Toussaint, Real Estate Group