California Tax Credit
The new California Tax Credit on new homes for any taxpayer and new & existing homes for first time home buyers that begins May 1, 2010 has raised many questions that deserve a good, detailed answer.
This page will be refreshed often with new questions pertaining to the credit, steps to take to obtain the credit once it’s available, forms to use and additional professionals to contact for further information.
Please submit your questions below in the Comments section and eventually they will be added to the list. There are approximately 4 other articles that I created that are creating questions of their own – those will be posted here too.
Bookmark this page and forward it to a friend or share on your social networks.
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Forms for Reference
2010 Reservation Request for New Home
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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Top 2 Featured Questions
From FTB 2010 Guidelines:
Since many taxpayers will not be able to utilize the entire tax credit, the legislation specifies that the $100 million cap for the New Home Credit will be reduced by 70 percent of the tax credit allocated to each buyer and the $100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. We will allocate the tax credits on a first-come, first-served basis.
Q. What do these reductions mean and how does that effect me?
A. This is being investigated and once properly researched and understood, the results with examples will be posted. Most likely a whole post dedicated to this portion of the guideline. I’m on it.
A. From Xiangrui Comment below: (check his full comment and my response for more info)
“If a first time buyer is allocated $9000 credit, the $100 million cap now will be reduced to $100 million – $9000*57%. The cap keeps reduced after each allocation until it is used by all allocation
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Q. So… Ca tax credit is very different form Federal which is refundable, correct?
It causes confusion among those who want to rushes to change closing date to May, 1… It is not WORTH IT, IF YOU DON’T OWE MONEY TO THE STATE, YOU WONT GET A REFUND!!
A. Non-refundable simply means you can not get back more than what you paid in tax. It’s used to prevent fraud and welfare. For example, you paid $2500 California state income tax and you don’t owe any tax money. With this tax credit, you will get a $2500 check back after you file your tax return instead of $3333. Basically, if you pay enough state tax, there will be no difference between refundable and non-refundable tax credit.
Here is the difference between refundable and non-refundable tax credit:
http://thefinancebuff.com/2009/02/refundable-tax-credit-and-non-refundable-tax-credit.html
-thank you to DiLara for the Question and to Zack for the answer
Frequently Asked Questions
From Betty – I’m a first time buyer. If I buy an existing home (short sale in contract now) with the closing date in May can I get both Fed $8000 and Ca $10000? Because according to the Fed policy, if in contract before 4/30/2010 and close before 6/30/2010 I can get the Fed $8000 tax credit. Can I still get CA $10000 at the same time?
A. Betty, according to Assembly Bill 183 it states “purchases made between May 1, 2010, and on or before December 31, 2010, or on or after December 31, 2010, and before August 1, 2011″. Purchases may be seen two ways, a) when you first go into contract or b) when your Deed of Trust is recorded with the county. If this credit is based off of recording date and you record after May 1st you could be eligible. The tax credit will not last, in my opinion, to the end of the year, as the last credit seized 8 months early. My opinion is in order to claim the credit you will need to provide the Final HUD-1 to your tax consultant to prove your eligibility, not the purchase contract.
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From Jeff – I’m looking at closing on a condo on May 1. Would I be able to qualify for both credits if I have a contract prior to that date? Also, is the California credit just a credit against taxes owed (I normally owe the state zero) our would I be looking at receiving the full 10K over 3 years? Thanks for your help!
A. it really appears that if you record your purchase after May 1st, 2010 you’ll be eligible for the state credit. If you were in contract prior to April 30th and close before June 30th, you’ll be eligible for the Federal credit. As far as how the credit is to be distributed, that remains to be seen. They claim up to $3333/year, but the previous tax credit wasn’t as simple as that. The credit is for 5% of the purchase price or $10,000 whichever is smaller. If you owe $0 typically, in my opinion, you will receive the maximum credit each year for 3 years as long as you stay in the home for the minimum of two years as your primary residence.
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From Marisol – We closed escrow last year in January, we did not take advantage of the California Tax Credit then, is it possible to claim it now based on our purchase of 01/09??
A. Marisol, purchases between May 1, 2010 and Dec, 31, 2010 are eligible and then Dec.31 – Aug 2011 as well. You are eligible for the Federal credit if you were a First Time Home Buyer.
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Q. Our expected escrow closing date is April 22, 2010. Are we going to be eligible for the credit if we change the closing date to May 1st, 2010? The bill says purchases made between May 1, 2010, and on or before December 31, 2010, does the date means the closing date or the signing of purchase contract date?
A. I understand it to be the closing date, the day it is recorded with the county. It certainly doesn’t hurt to attempt it, that way you could be eligible for the Federal $8000 and state $10000, that is if you’re a first time home buyer.
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Q. Do you know if the house has to be under a certain purchase price for the buyer to qualify for this tax credit?
A. Their is no minimum/maximum to the purchase price. You will receive up to 5% of the purchase price or $10,000, whichever is smaller on your credit.
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Q. When did Gov. Arnold Schwarzenegger sign Assembly Bill 183 into law?
A. March 25, 2010
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Q. 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?
A. This is one of the biggest questions on my plate as it is a much more common scenario these days. In a previous comment based on a similar scenario I mentioned the parents wouldn’t be eligible for the credit which I’m assuming is okay with you. You want to make sure that you can take advantage of the credit, I’m assuming.
This will be one of my Featured Questions/Answers once I’ve researched it. Keep an eye out.
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Q. So… Ca tax credit is very different form Federal which is refundable, correct?
It causes confusion among those who want to rushes to change closing date to May, 1… It is not WORTH IT, IF YOU DON’T OWE MONEY TO THE STATE, YOU WONT GET A REFUND!!
A. Non-refundable simply means you can not get back more than what you paid in tax. It’s used to prevent fraud and welfare. For example, you paid $2500 California state income tax and you don’t owe any tax money. With this tax credit, you will get a $2500 check back after you file your tax return instead of $3333. Basically, if you pay enough state tax, there will be no difference between refundable and non-refundable tax credit.
Here is the difference between refundable and non-refundable tax credit:
http://thefinancebuff.com/2009/02/refundable-tax-credit-and-non-refundable-tax-credit.html
Reply to this answer: yes, if you paid $2500 in state tax, you will get back $2500. And if you paid $150, you will get $150. It depends how much taxes you paid. That’s what everybody should consider before making changes to their closing date…
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Be sure to look at the Comments section below for additional Questions/Answers
Please submit your Question or Answer/Reply below.
Thank you!
{ 110 comments… read them below or add one }
We just purchased a home and closed on it at the beginning of Febuary. Is there any California state credit that we qualify for? Or did we purchase 2 months too early?
Can you tell me when this expires, May 2010 or May 2011?
Hi Bryan,
The California tax credit from last year ceased on July 2nd, 2009 I believe, 8 months before the end date of March 1st, 2010. They no longer accepted applications after this date. Yes, you purchased a bit early if you compare it to the tax credit. Are you a first time buyer? If so, you do qualify for the Federal $8000 credit.
Jonas
Kim,
here’s the info from AB 183 – for purchases made
between May 1, 2010, and on or before December 31, 2010, or on
or after December 31, 2010, and before August 1, 2011, subject
to specified restrictions
Is this new credit for first-time buyers only? I’ve heard conflicting answers. I am not a first-time home buyer, but am buying a newly constructed home.
Janice,
I have confirmed that ANY taxpayer may buy a brand new home, never been lived in, this includes move up buyers and first time home buyers. The benefit to first time home buyers in this credit is that they may buy existing homes as well as new. That’s the big difference. In the first credit they limited it to newly constructed homes only – obviously to help move inventory and spark employment in the construction, plumbing, landscaping, etc fields.
This new credit will benefit in both new homes and existing homes but in order to buy that existing home and get the credit you must be a first time home buyer.
So, you will have the opportunity to claim your credit on this new home you are buying. You can claim your credit early by getting in line, especially if your new home isn’t ready to move in yet. See me for more details.
Will this tax credit work the same way as last year’s where the maximum amount that the taxpayer will be allowed to take each year will be the lessor of 1/3 of the credit or the amount of tax owed with no carry over allowed? If so, then those who annually owe less than the tax credit will not receive the full benefit. Correct?
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 ? Is there any income limit for claiming the California first time home buyer tax credit for 2010 ?
Is there any income limit for getting CA first time home buyer tax credit during May 1 to Dec.31 of 2010 purchasing?
Is the CA $10,000 first time home buyer tax credit good for Townhouse, Multi-Family, or Condo?
I am a first time home buyer. Will the credit apply to existing homes that are NOT abandoned, foreclosures, or returned to lender?
Kathleen – great question, tomorrow we should see the first release from the Franchise Tax Board answering some of these questions. I hate to assume things, but one could only think that they will follow in the same path of crediting individuals.
From 2009 version of claiming the credit – “If the available credit exceeds the current year net tax, the unused credit cannot be refunded or carried over to the following year. This credit is non-refundable.”
This would be a great time to contact your tax professional and demand ways to minimize the risk in not being able to claim the full credit, even if you miss the first year’s full benefit, you would still have 2 more years to maximize the return, right?
Santosh- from Assembly Bill 183 – “(4) A qualified principal residence is purchased on the date on which escrow closes with respect to the purchase of the qualified principal residence.”
If you believe extending the date of the close of escrow on your transaction will not negatively effect you or your seller, then it would appear by this particular guideline above that if escrow closes after May 1, 2010, you would be eligible.
Santosh and Qingling Yang -As of today there appears to be no income limitation as there is with the Federal tax credit.
Tony- from AB183 – ““Qualified principal residence” means a single-family residence, whether detached or attached, that is purchased to be the principal residence of the taxpayer.”
To me this says Single family residence, condo, townhome. It does not appear that Multi family would apply even if you lived in one of the units. Here is the extended verbiage from the 2009 guidelines:
“Types of residence: Any of the following can qualify if it is your principal residence and is subject to property tax, whether real or personal property: a single family residence, a condominium, a unit in a cooperative project, a houseboat, a manufactured
home, or a mobile home. Vacation homes, second homes, and rentals do not qualify.”
The “rentals do not qualify” is the only indication for the ineligibility of multi-family properties.
I’ll research this further Tony, to see if any multi-family properties where one of the units was designated as the primary residence of the taxpayer received the credit from the previous version.
Bill- see above in “qualified principal residence”. Any home is eligible, not just bank owned.
Keep the questions coming.
Jonas
So regarding this credit I’m still a little confused. I will close on my new construction June 15, so I understand it makes me eligible for both the state and federal credits.
Lets say my state taxes from paycheck witholding for the year is $4500 and after deductions and other things I end up having a tax liability of $4000. Without the credit I will be entitled to a $500 refund, similar to what I got for my 2009 taxes.
Now if I qualify for the full 3333 per year, which I will, Will I get the $500 refund + the $3333 credit equaling $3833?
I’m Using the equation Withholding – Tax = Refund, by which the credit is reducing the Tax.
I came across this on CBIA website(http://www.cbia.org/go/cbia/government-affairs/homebuyer-tax-credit/homebuyer-tax-credit-faq/) while browsing to see how a homebuyer can qualify for CA $10k tax credit.
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.
Jonas,
Is this qualified information ? Does that mean that ppl who signed purchase contract before May 1st but closing escrow after cannot get this credit ?
HeCareth – I am with you up until you asked about the $500 refund on top of the credit of $3333. I am not a tax professional. I will defer these types of questions to my CPA and post the results to scenarios like this in a future post or comment. Check back often or subscribe to my feed to get updates.
Aditya- In AB 183, it clearly states that the purchase of a home is considered to be on the close of escrow, not the date in which you get into contract. My understanding is you can obtain a contract prior to May 1st and close after this date and still qualify for the credit.
With the pace of existing home sales with first time home buyers, the $100 million allocation will be gone in 1-2 months. The new home allociation of $100 million should last for about 4 months as did the last. If you are a first time home buyer buying an existing home, get in early. If you are a first time home buyer buying a new home, your credit will fall under the new home allocation giving you more time. Reserving your credit is essential if you are buying a new home which is isn’t completed yet.
thank you,
Jonas
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 condo. Do we still qualify for first time homebuyer credit for CA?
Eddie,
Your wife is not considered a first time home buyer, but you are it appears. If you are buying a New Home, you both are eligible. If you are buying an existing home, then the big question arises if you are able to obtain the credit based on your unique scenario. Let me do the research on this one and follow up with a post.
Thank you for the question.
Jonas
Eddie,
Okay, pending any differences in tonight’s release on the FTB website, I believe your wife and you will both be considered first time home buyers. Why? 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. If it is determined that the condo was a primary residence in the past 3 years for your wife, then here’s how it would work for you:
Considering the rules are the same from 2009’s credit:
Let’s say you buy a home for $400,000. You and your wife will be 50/50 on the new purchase.
$400,000 x 50% = $200,000 qualified purchase price
$200,000 x 5% = $10,000 total credit amount
However, 50% of the ownership of the home goes to a non-qualified buyer, therefore:
50% ownership x $10,000 credit = $5,000 total credit
You would be able to claim a credit up to $1666.66/year for the next 3 years.
Hope this helps.
New tax credit guidelines posted – http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml
The main item that stands out is “However, since many taxpayers will not be able to utilize the entire tax credit, the legislation specifies that the $100 million cap for the New Home Credit will be reduced by 70 percent of the tax credit allocated to each buyer and the $100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. We will allocate the tax credits on a first-come, first-served basis.”
I’d love to hear some of your interpretations of this. I’ll be getting to the bottom of this one and post the results asap.
thank you,
Jonas
I am a first time buyer and I have a closing date on April 12th. If I extend my closing to May 1st, how much do seller’s lenders charge as a per diem penalty? This is a short sale. Is this per diem negotiable?
As for the update from State Franchise Board, I do not really understand what the following means – “$100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. We will allocate the tax credits on a first-come, first-served basis”
Hi Jonas, yeah the wording was kind of confusing when I read it. How I interpreted it was that since they don’t believe most people will use the full 10,000.
So from what I think if 100 million dollars is basically given out to 10,000 people equally. Of that 10,000 some will not even use it, most will only use a portion of it, and few will use all of it. After averaging it out I guess they feel on average they would give 3,000 per individual for this tax credit. Basically totaling $30 Million, which is a reduction of 70 Percent ($7000) of the tax credit allocated to each user (of the 10,000). Here is my math {100 Million – [(70%*$10,000) * 10,000]}
Also, from the latest update, it says:
“Taxpayers will not be eligible for either tax credit if any of the following apply:
The taxpayer was allowed a 2009 New Home Credit.”
Are they referring to the new home credit for $10k that CA provided in 2009? My lender thinks this refers to the federal credit in the amount of $8k and those who claim the federal credit are not allowed the state credit.
Actually,
Jonas now that I think about it I think they will reduce the 100 Million dollar pot by $7,000 if the Allocate a user 10,000 and by 3,500 if the allocate a user 5,000. I guess they fell on average people will only use 70 percent of their allocation.
So in theory they will be able to give the credit out to more than just the amount which a persona house qualifies for. So I guess just completely ignore my first comment..lol
HeCareth- this stumped me on the Assembly Bill and I’ve been waiting to understand it. The FTB didn’t release anything new other than a small disclaimer saying that “since many taxpayers will not be able to utilize the entire tax credit”. This makes sense as a lot of people will fall under the category of not being able to apply the full $3333/year. But, my big question is for those that can apply the full amount, is their tax credit automatically reduced because of the law of averages?
Believe me, this is now the biggest question on my plate.
An earlier question you had I deferred to my CPA. My CPA won’t pick up her phone because it’s tax time so I went hunting. After I read this post for the 5th time http://thefinancebuff.com/2009/02/refundable-tax-credit-and-non-refundable-tax-credit.html, it finally hit home. You were wondering if you’d get the $500 + $3333 since you withheld more than tax owed and according to this article “Non-refundable does NOT mean it’s not going to be included in the tax refund. .” It has to do with taxes owed. “If you pay enough taxes, it doesn’t matter whether a tax credit is refundable or non-refundable.” So, in conclusion you’d get the whole thing. Or will you get that reduced by 70%? Damn confusing isnt it?
Sri,
I don’t know how much your per diem fee is, it would be in your purchase contract. Contact your real estate agent. Some are negotiable others aren’t. Sorry I couldn’t help more here. On average per diems are about $50-100.
The reduction of 57% for FTHB and 70% for new home is being investigated. I’m looking for hard numbers and specific scenarios that I can post. No one at the state understands this yet. No one has been briefed. The rules just went up yesterday and since AB 183 was signed no one has interpreted this with numbers, other than HeCareth and me in our comments above (at least it seems that way).
Before you extend your closing date, call your tax professional, if they will answer, and ask about your taxes owed. You want to make sure that you will benefit from the credit before you simply change your close of escrow. Be sure to follow all the timelines of getting paperwork submitted to the state following your close of escrow. I will have a new post eventually that gives a step by step presentation in layman’s terms to claim the credit. FTB makes it so cryptic.
Your 2nd comment regarding the 2009 Home Credit – they are not referring to the Federal credit. They are referring to the first California state credit that was handed out last year to new home buyers only. If you bought a home in 2009, which you didn’t, and you took advantage of the tax credit, you can’t buy a new home in 2010 and get the credit again.
It’s like a coupon, 1 per visit.
There will be a small minority that actually benefits from the Federal and state credits. You can obtain both.
Hope this helps.
Jonas
The tax credit may not reduce regular tax below TMT. What does this mean ? What is TMT and how is it calculated ?
Santosh,
I wanted to reply quickly to you. Give me some time on researching this topic to give an easy to understand response. The information that is out there on TMT is riddled with technical speak that isn’t the easiest to break down. I’ll look for some examples that involve real numbers and get back to you.
I appreciate your patience.
Jonas
Jonas – My agent told me that the purchase contract does not say what per-diem the bank is going to charge in the event of an extension. Is it common that the contract does not include this? Can the bank charge any amount they want? Is it negotiable in this case? We are nearly 20 days away from the May 1st deadline. Thanks for your advice.
Sri,
If the seller/listing agent did not place a per diem in the contract then there isn’t one. It is common that they don’t include them. The bank cannot come back and charge you for it. However, going beyond the close of escrow without a proper extension will result in a breach of contract and the seller has the right to cancel escrow and if your contingencies have been removed your deposit is at risk to be lost to them.
My suggestion is to have your agent request the extension and to be honest about why you are extending. They can say “no”. If you try to hide the real reason and blame it on loan conditions or something else, that can certainly backfire on you too.
The seller wants to close on the transaction, you both agreed to a date and I’m assuming everyone in the transaction has been working diligently to close on time. This extension is purely for your benefit and no one else. I don’t want to be the cynic here, but with such a one-sided gain, I believe you and your agent should ask the seller for their opinion and not just throw it out there. I feel transparency and involving others in the decision making process will only aid in getting what is truly desired. You’ll have to weigh out if the tax credit is all that positive for you before you start negotiating with your seller.
Please let me know the outcome, I think we’d all like to hear what you decide to do.
All the best,
Jonas
Hi Jonas,
My understanding for numbers 70% and 57% is as following, purely based on the language itself . Let’ take 57% for example. If a first time buyer is allocated $9000 credit, the $100 million cap now will be reduced to $100 million – $9000*57%. The cap keeps reduced after each allocation until it is used by all allocation, then no more application is accepted. This simply means the government won’t spend $100 million, but a much smaller number. The last sentence “We will allocate the tax credits on a first-come, first-served basis” further verifies my understanding.
Xiangrui
In a previous comment in response to Eddie and his wife’s ownership in a condo I made an incorrect assumption to Eddie being able to qualify for a portion of the tax credit since his wife may not be able to.
here’s what I discovered:
Based on the information available on the Franchise Tax Board website:
“A first-time buyer is any individual (and the individual’s spouse/RDP, if married) who did not have an ownership interest in a principal residence during the preceding 3 year period ending on the date of the purchase of the qualified principal residence.”
I apologize for the incorrect information.
Jonas
Xiangrui,
This is what I’ve been looking for, an easily understood breakdown by numbers. It appears then if the state reduces the allocation by a fraction of the total credit the taxpayer qualifies for, then more applicants will be helped/credited.
So by your example of: $100million – $9000*57% = a reduction in the allocation by $5130, not $9000; thus leaving $3870 on the table for the next applicant.
Am I reading that correctly?
And when I read Assembly Bill 183 for the 900th time here’s what confirmed for me on helping more applicants based on the 70%/57% reductions:
“the Franchise Tax Board shall
establish a wait list for subsequently received certifications or
reservations, with an order of priority based on the date certification
or reservation was received by the Franchise Tax Board. The
Franchise Tax Board shall notify taxpayers on the wait list no later
than December 31, 2011, as to whether they have been allocated
a credit and the amount allocated”
Thank you,
Jonas Kruckeberg
Jonas,
I don’t agree with your understanding. In the example, the applicant is allocated $9000, and the CAP for total fund will be reduced by $9000*57%. Meanwhile, the fund is used by $9000. So the left is not $100million – $9000, but $100million $9000*57% – $9000. So there is no more, but less applicant, will be helped.
Xiangrui
Xiangrui,
I see your point. I believe I was being overly optimistic about the reduction, however, I’m not completely convinced. The FTB needs to put this type of math together in writing to demonstrate whether they will take the unused credit and apply to additional applicants or if they will simply reduce the allocation by the highest amount per applicant even though most won’t use it all.
If you or anyone else comes across additional examples or better, something from the FTB, please chime in.
Hi, Jonas:
Here is my understanding.
for each new home credit allocation: the total fund will be reduced by 7,000 ( 10,000 * .7)
for each first time home buy credit allocation: the total fund will be reduced by 5,700 ( 10,000 * .57)
The reason is probably that home buyers on average do not pay enough California state tax (after all deductions) to take full advantage of the $3,333 tax credit per year. The numbers (70% and 57%) are very likely based on statistics and data from last year’s new home credit and other relevant predictions. This way, not much fund will be wasted.
Regards,
Zack
Xiangrui and others that have been patiently waiting a reply regarding the reduction in allocation:
I confirmed with a State Auditor this afternoon that the 70% and 57% reductions in the credit will in fact reduce the allocation at a slower pace and will open the additional funds for more people to be credited.
The previous tax credit was under used in 2009 due to so many people not being able to take advantage of the full credit offered – therefore, this time around the allocation reduction will happen at a slower pace.
That’s good news! However, this State Auditor did conclude that in order to make this comment a reality, she will pose it to their legal department who will then turn around and release a statement on the FTB site.
I also confirmed the non-refundable aspect of how you would be ‘reimbursed’ for taxes that have been withheld and confirmed the 50/50 ownership with parents not occupying the residence. So far, collectively, our hunches and opinions are holding up very well with the truth.
keep em coming.
Jonas
Hey,
This blog is godsend for me. Can someone clarify the following information for me
I have signed a contract in on Feb 25th to buy a townhome in CA. The property is set to close on 10th April. I am a first time home buyer and the property cost us $550,000.
Today I learnt that CA has a $10,000 tax credit for first time home buyer if the signing of escrow is after May 1st. Please correct me if I am wrong but I think I am eligible for the CA tax credit too if we push the closing of escrow to May 1st
If so, what is the best way of delaying signing of contract to May1st. Do I offer the seller his share of payment for the extra days and home that he accepts it.
Is there anything else that I can do to make use of the CA tax credit in case the seller does not accept our request. Can I close escrow on April 9th and record it on May1st to make use of tax credit. This way we do not depend on seller’s wishes.
Also, the property I am buying is a TH. Does than qualify too
Thanks
AM- you wrote “Please correct me if I am wrong but I think I am eligible for the CA tax credit too if we push the closing of escrow to May 1st; Also, the property I am buying is a TH. Does than qualify too”
You are eligible as a first time buyer and as a Townhome, the property can be detached or attached. To be eligible as a first time home buyer you need to have these 3 criteria
* Be a single family residence, either detached or attached.
* Be eligible for the California property tax homeowner’s exemption.
* Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.
you wrote “what is the best way of delaying signing of contract to May1st. Do I offer the seller his share of payment for the extra days and home that he accepts it.”
I answered this is a similar post – be honest with the seller, tell him/her exactly what your intentions are and ask point blank what they would want in return for this additional 22 days or so. Plus, #1, speak to your tax professional to be completely positive that you will benefit from the tax credit, then negotiate with your agent and seller. You don’t have much time to do so, a late extension can cause harm to a deal. Tread lightly and be careful.
you wrote “Can I close escrow on April 9th and record it on May1st to make use of tax credit”
No, close of escrow is considered the purchase date.
Before you do anything, check with your tax pro to see if it’s worth it. If you receive $3333 back from the state the first year and the seller desires a small portion of it, then it may be worth it.
Good luck and please post the conclusion.
Jonas
Jonas,
Thanks for the reply. I am reaching out to the escrow officer and my CPA before contacting the sellers/realtors. Can you clarify on the part about townhome being a Single Family Residence.
From what I am reading from your post, anything that is not a multi-family residence is eligible for the credit. It can be a condo or a townhome or a stand alone single family home. Is that correct.
Thanks
AM,
here’s the description from 2009 form 3528 – http://www.jonasloans.com/wp-content/uploads/2010/04/09_3528-ftb.pdf
Types of residence: Any of the following can qualify
if it is your principal residence and is subject to
property tax, whether real or personal property: a
single family residence, a condominium, a unit in a
cooperative project, a houseboat, a manufactured
home, or a mobile home. Vacation homes, second
homes, and rentals do not qualify.
Thanks. This is great. I will keep you posted on my story. Updates till now
- Rate lock expires on 28th April. Lender is fine with pushing escrow out to May as long as documents are signed before rate lock expires. I guess if we sign on 27th, the loan will be funded on 30th and we can record on 3rd (first working day of May). So from the lenders point of view the timing is working out well.
- Talked to escrow officer asking for Title company feedback on postponing escrow. According to them they will record the day after receiving funds. That is all they care about.
- Requested the seller to consider delaying close of escrow. Offered them help with they cost of making payments on the house till COE.
Let us see what happens.
Hi Jonas,
I think I understand 57% and 70% now. You are right, and my speculation was wrong. Although my though was based on the language, it doesn’t make much sense, because the numbers are due to the reason “many taxpayers will not be able to utilize the entire tax credit”. If my speculation was right, it will be something like “since you are good to me, I kick your butt”.
Please delete my confusing speculation.
The real situation is, I believe, there is no way to know exactly how much tax credit each applicant will get, so each one will be allocated $10,000. But since many won’t get the full amount, the fund will be reduced by only 70 or 57% of $10,000. So the government will actually allocate more than $100 million for each of two categories, and hope the final expense will be about $100 millon.
Xiangrui
Jonas,
Thanks for your answers here. This seems like a very good discussion.
I’ve got a question I don’t see answered on the FTB website. I’m in the process of purchasing an existing home with somebody I am not married to. We have not registered as domestic partners. We will both occupy the house as our primary residence.
The seller seems willing to push the close to after May 1, if it helps us.
I am a first time home buyer. She is not. Do I qualify for the tax credit.
Hi,
So the seller has agreed to shifting the COE to 3rd May. His condition is that he should not have to pay anything extra. The seller has vacated the property, has prepared a cashiers check for the escrow company and has moved out of state.
Is it possible for us to pay for his share of mortgage,HOA etc without making him do more paperwork. I think it can be done but wanted to get your feedback on this.
Xiangrui – cool. It definitely is confusing and I went back and forth for a few days. Thanks for your continued support of the site.
AM – For a few extra days the costs are minimal. for the seller to say “not pay anything extra”. What does that entail? Be careful you’re not biting off more than you can chew. Find out exactly what he/she is not paying and understand it in a dollar figure. My $.02.
Fred,
Your situation is unique. FTB has not released ‘unique’ scenarios to their site, as there would too many to list. That leaves us to interpret their foundation. For my interpretation to you, I’m using 2009 Form 3528 and the Publication about 3528, both are linked at the top of this page as references.
Since you and your home purchase partner are not Registered Domestic Partners, nor married, then it appears YOU are the only Qualified Principal Resident. Your non-registered partner or NRP for short, I’m assuming is filing taxes separately. If that’s the case, make sure YOU are eligible for these 3 items:
* Be a single family residence, either detached or attached.
* Be eligible for the California property tax homeowner’s exemption. (YOU are the only one that can receive this on your taxes to be eligible for the credit – you can’t split it, from what I understand – see your Tax Professional for validation)
* Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.
Since you are 50% owner and the other owner you are not married to or Registered Partner, then you should be eligible for 50% of the tax credit. So if you’re buying a $200,000 residence, 5% would be $10,000, but since you have 50% ownership, then $5000 you would be eligible to get over 3 years.
Your situation is unique as you have NRP living with you that will own 50% of the home but is not a First Time Home Buyer. Thus, my interpretation is wide open for criticism, but seems logical using the references that we have. Go thru the forms I mentioned and see the examples they have.
Here’s the verbiage that backs up my interpretation:
“(2) If two or more taxpayers who are not married purchase a
qualified principal residence, the amount of the credit allowed
under subdivision (a) shall be allocated among the taxpayers in
the same manner as each taxpayer’s percentage of ownership,
except that the total amount of the credits allowed to all of these
taxpayers shall not exceed an amount equal to the lesser of 5
percent of the purchase price of the qualified principal residence
or ten thousand dollars ($10,000).”
Submitted on 2010/04/04 at 4:00pm
Hi Jonas,
I’m closing a home in el monte, ca. on Apr. 15th 2010(original close date). But since we heard about this new CA $10,000 for first time buyers, then we are trying to extend the escrow. But do I have to pay the per diem for 15 days? How is it usually calculated? And is it still possible to extend it since I already wire the entire funds to the escrow(cash perchase)? But I don’t think the money is gonna be transferred until tomorrow caused of the easter sunday. And seems tough, because the agent is representing me and the bank, and she is not so cooperating.
Please advise.
Thank you!
Hi Jack,
The per diem is seen in your purchase contract or counter offer or addendum. If the seller/listing agent spelled out the per diem penalty then there may not be a possiblity to avoid it. All you can do is ask with your agent and give them a transparent, honest reason why. You can always extend, everyone needs to be on board and an official extension will need to be in place and fully executed.
Agents that represent the seller first and then represent you seems to always be a sticky point. You are 1 buyer, but their seller represents dozens if not hundreds of properties for them. In order to maintain the business from the seller, the listing agent will maintain their fiduciary duty to them, you second. A 15 day delay costs money and time. Be prepared for a ‘no’ and if you get a ‘yes’ then great.
Please keep us posted on this discussion as to your results.
thanks,
Jonas
Jonas,
Thanks for the response. Of course we will make sure the $ value we have to pay to the seller makes sense. This a normal sale and the seller is not a bank. He is selling the property at a small loss. He has been told by the title company of the amount he owes for an April closing. He has written them a cashiers check and has left the state.
If we assume that we have to pay an extra $1000 towards sellers costs, then can we just write a check and give it to the title company and not make the seller go through any more paperwork. He has requested us to minimize his paperwork as he is old and out of state.
Jonas!
Thanks for all the info on this page. It’s really helpful!
We are in the same situation close of escrow is target on April 15, but it cost us $4000 to extend 15 days to May 1st. We are qualify for the first time home buyer credit.
After more careful calculation, we plan to pass for the extension, and just close on April 15, because:
1. The total amount of credit for the next 3 years might not cover the initial $4000. Because we have to pay TMT at 7%, and we don’t see that we can have $2000 more per year tax (9%) that we can claim?
2. The allocation of tax credit suggest we might not have $3333 when there are more applicants than 100 million can afford?
3. Is it legal, from FTB perspective, that we pay to extend our contract and close the escrow on May 1st?
On one hand we really wish to take advantage of the credit, on the other we are very uncertain of the outcome, and concern we are just pouring $4000 for nothing in return. Would you consider these are real risk?
Thanks,
Calebme
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