The California Franchise Tax Board released the guidelines for the 2010 tax credit that everyone is raving about.
This is an update to last week’s post on the California tax credit extension. I will concentrate on answering several questions that have been raised and provide a few popular scenarios that many can relate to.
Now remember, in March 2009, the initial $100 million tax credit for new homes only was launched. By July 3, 2009 the state had roughly 12000 applications, of which about 10,700 were allocated their credit. The new tax credit for 2010 launching on May 1, 2010 for $200 million will be split evenly; $100 million for new home sales and $100 million for first time home buyers. Should a first time home buyer want to buy a new home, their credit will fall under the new home allocation. At the current pace of resales in California, the first time home buyer allocation could be exhausted within 1 maybe 2 months, whereas the new home credit should last equal to that of 2009, about 4 months. Better have your ducks in a row on this one, right?
FAQ for California Tax Credit
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New Home Tax Credit Highlights
- $100 million allocation for brand new home purchases
- Any taxpayer can apply
- Move up buyers, first time home buyers eligible
- Detached or Attached single family residence; does not include rentals, 2nd homes or vacation homes
- Ability to reserve tax credit for home not yet completed
- Must be primary residence for at least 2 years or tax will need to be refunded
- Homes must close escrow after May 1st, 2010 but before December 31, 2010
- If credit lasts this long – you may obtain a contract by December 31, 2010 and close by August 1, 2011
- Seller must submit Certification of home never been occupied
First Time Home Buyer Credit Highlights
- $100 million allocation for existing homes; if FTHB buys a new home the credit is taken from the new home allocation
- Standard sales, short sales, foreclosures are eligible
- Escrow close date is considered purchase date – those that enter a purchase contract prior to April 30th, 2010 and close after May 1st, 2010 could be eligible for both the Federal refundable credit and the state credit
- “First Time Home Buyer” = never purchased or no ownership in a principal residence during the preceding 3 year period ending on the date of purchase of the new principal residence
- Must be primary residence for at least 2 years or tax will need to be refunded
- Certification from taxpayer that they are a first time home buyer
Scenario #1
My wife and I are in the process of purchasing a new home jointly with my parents (50, 50). The new home is about $450,000 and the closing date of this new home will be in September 2010. There will be 4 persons on the title: me, my wife and both of my parents. However, only my wife, my kid and I will be living in the new home as our primary residence.
With my parents who are not going to live in the new home, on the title, will this affect my being qualified for the full amount of $10,000 California 2010 new home tax credit?
$450,000 purchase price
4 people on title, parents will not live in home
Husband/wife will occupy as primary residence = Qualified for credit
$450,000 x 50% ownership = $225,000 qualified purchase price
$225,000 x 5% credit = $11,250, however $10k is the max
50% Ownership x $10,000 credit = $5000 credit amount
You and your wife would be eligible for a $1666.66/year credit for 3 years as long as you stay in the home as your primary for the first 2 years.
Scenario #2
My wife and I plan on purchasing a home between May 1 2010 and Dec 2010; However, she and her sister are co-owners of a rental condo. Do we still qualify for first time homebuyer credit for CA?
As long as the residence that is held by your wife and her sister has not been a principal residence for her in the preceding 3 years up until the date you purchase the new home, she will be okay. So basically that condo has to be a rental or claimed as such on the tax returns.
Scenario #3
I am in the process of closing our escrow on April 19th for an existing home (not new) and I am a first time home buyer. Given that the tax credit is going to be effective from May 1st 2010, does it makes sense to push our closing date to May 1st ?
This is simply to take advantage of both credits, the Federal $8000 tax credit and the state. My suggestion if you choose to extend your escrow would be to speak with your tax professional to make sure you will be receiving a benefit from the tax credit.
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FAQ for California Tax Credit
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Forms for Reference
2009 Form 3528 – actual form from last year – cannot be used for new credit – only use as a reference – DO NOT SUBMIT THIS!
FTB Publication on 3528 – after credit was exhausted, FTB released this
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