CA Tax Credit for New Homes Victim of Budget Cuts
Friday, July 24th, 2009
***Update – 2010 California New Home Tax Credit Take Effect 5/1/10 – Details Here***
Only a little over 4 months into a year long program, the California Tax Credit for New Home Purchasers is officially dead! A victim of the state budget fiasco, the most popular and successful stimulus measure enacted during this economic disaster has been turned off. The prospects for new construction jobs and jobs in the related service industries are now growing cold. You have to wonder if anyone is in Sacramento understands how the real world operates!
Brought to life in March of this year, the California Tax Credit for New Homes has been credited with the renewed interest and increased sales of newly constructed homes. Inventory levels of new homes dropped dramatically in the first two months of the program. Followed by the start of construction on many new homes across the state. Many markets in California showed positive job growth in the construction and real estate sectors over the past two months. Building permits were being pulled in many California counties. So successful was the California Tax Credit for New Homes that the Franchise Tax Board estimated the $100,000,000 allocation would be fully subscribed by the end of June. Then, a funny thing happened.
The Franchise Tax Board came back to the legislature and informed them that there would still be money left in the allocation, if they could apply a formula to calculate the tax credit needed for each applicant, based on the applicants estimated future use of the tax credit allocation. It seems that not many California tax payers have $3,333 per year of California tax liability. The way the legislation was drafted, the Franchise Tax Board was directed to allocate $10,000 of Tax Credit for each applicant. When, in reality, the average applicant would be requesting more like $7,000 in tax credits.
The California Tax Credit for New Home Purchases is non-refundable and not eligible for a carry forward benefit. This means, the Tax Credit benefit is limited to $3,333 per year for three years. If your state tax liability was $1,333, you would not owe any state taxes that year. But the difference, $2,000, was forfeited and could not be carried forward. If the following year, your state tax was $4,333, then your tax bill would be $1,000 and you could not claim any of the previous $2,000 year difference.
Given that direction, the Franchise Tax Board told the legislature there would tens of millions of dollars available to continue the program, if the legislature modified the language directing the Franchise Tax Board to allocate an estimated tax liability per subscription instead of $10,000. Near unanimous support came from the legislature for this proposal, prior to the budget negotiations. But, during the budget negotiations the tax credits designated for the purchasers of new homes was stripped away, leaving new home buyers out of the equation.
When you look at the trillions of dollars given this year to the banks and the automobile industry and how many jobs continue to be lost in those sectors, you have to ask yourself “Where is the economic stimulus?” When you look at millions of dollars spread over three years shared with 14,000 tax payers and the thousands of jobs created by that activity, you know exactly how that stimulus program is working. Couple that with estimates as high a 3:1 return ratio for the state in tax dollars collected over the three years from increased property, sales and income taxes, you must shake your head and ask again:
“Does anyone in Sacramento know how the real world operates?”
[...] some good info on water conservation and greenhouse gas initiatives, but if you really want the low down on the death of California's new-home buyer tax credit–yes, that's right all hope for an extension has been extinguished–I recommend checking this [...]
[...] conservation and greenhouse gas initiatives, but if you really want the low down on the death of California’s new-home buyer tax credit—yes, that’s right all hope for an extension has been extinguished—I recommend checking this [...]
Sarah,
Unfortunately, the California Tax Credit for New Home Purchases is off the table for now. Killed by the budget and politics, the best money making (for governments) stimulus package has been regulated to history. Just goes to prove the point one more time … sausage and politics….
Steve
Steve–
Good article–thank you. Is it possible this might come back to the table in the coming months? Any new info over the last few weeks?
TIA–
Michael,
Thank you for the comments. The CA Tax Credit is still the subject of a couple of bills in front of the legislature. Key to these bills moving ahead is a report back from the Franchise Tax Board on the status of the existing applications for the Tax Credit. As of August 19th, the FTB claims to have allocated $98.8 million of the $100 million allocation, but this allocation has been done on a $10,000 credit per applicant. FTB acknowledges that the average CA home buyer will not have a full $3,333 of tax liability per year for 3 years (as required by the program). The actual usage will likely be between $50 – $80 million. This is the report the legislature is waiting for, before action can proceed on any of the outstanding bills.
Meanwhile, NAHB is working on the Federal level to re-authorize the Federal Tax Credit and to possibly expand it’s value and applicable transactions. The latest proposal is for a $15,000 federal tax credit, fully refundable and applicable to any home purchase without restrictions on income or buyer status.
I will bring forth any news on these items if and when they move forward.
Steve
Steve,
I have heard that recently the Senate voted 35-1to reauthorized the use of California State funds. I have been perusing articles online since I will be 1. a first time home buyer applying for the Federal Credit of $8,000 and 2. purchasing a new development. Can you tell me if we have heard whether the assembly has passed this bill?
Sarah
Sarah,
I am greatly disappointed by our State Legislature, specifically, our state Assembly and it’s leadership. You are correct, the State Senate did approve a modification to the original California Tax Credit legislation to allow approximately 4,200 more new-home buyers to apply for the $10,000 Tax Credit. When the legislation was delivered to the Assembly for confirmation, the Speaker of the Assembly refused to allow the item to come for a vote … because of party politics! Seems that our Democratic Speaker did not like the fact that a Republican Senator had his name on the bill as the author. So, please thank your Democratic Speaker for the Tax Credit bill’s failure. She again proved that petty politics are more important to our elected officials than getting the California economy working and more important than getting our California citizens working.
I will let you know if there are any changes in this partisan stalemate.
Steve
Steve, Thank you for your last update. I was wondering what happened on the Assembly vote. – No vote! Figures. I’ve been following the CBIA posts.. but if they noted the item I missed that issue. Thank you again for your update.- Ingrid
Do we know if they are going to be voting on this issue? I am supposed to close on my house the 1st week of December and would really love to get an extra $10,000. Any word on this issue?
Sorry Kristin,
The extension of the California Tax Credit for 2009 is dead. The Assembly decided not to take the issue up. The CBIA will be looking for opportunities to revisit the Tax Credit issue in the California Legislature in 2010.
Steve
I signed contract to purchase a new condo on March 26, 2009 but it took until June 30th, 2009 to close. My Fax was accepted on July 1st but I was still denied the credit because the money ran out. I hope they revisit this in 2010.
Paul,
I understand your frustration and unfortunately, you are not alone in the disappointment of missing out in the last round of California Tax Credits.
While there are no current “draft bills” on the new Tax Credit. I do know that a great many questions about the implementation of the last Tax Credit Bill are being asked and hopefully, will be addressed in this next version.
I will bring you more detail as the process moves along.
Steve
Is there an update on the CA tax credit? We entered into a contract for purchase of a new home on Jan 30th and its is estimated to close by June 30th.
Bluebells,
I recently wrote a blog about the California Tax Credit for new home purchasers. You can find it at http://blog.brookfieldsd.com/california-tax-credits-for-new-home-purchases-revisited/
Please check it out for the current details on the new California Tax Credit. Things are moving slowly in Sacramento, but the hope is still strong that the legislature will act in the new term.
Steve
Hi,
I just finished my income tax return. I did in fact purchased a new home in CA in Dec. 09. However, I could not apply for the 10,000 tax credit. I just wonder how on earth the law can work on “first come first serve” basis? Now, I find out about the extension of the tax credit….for the 2010-2011. This is simply outrageous. What about all the people that qualified for the tax credit and did not get it? Can we all fill out a class action suit against the state?
Marlena,
I understand your frustration. As a builder, I would have greatly appreciated the state continuing the tax credit through the year of 2009. But the legislature did not see it that way.
Unlike the Federal Tax Credit which used a date certain for the end of their tax credit, the state of California used a dollar amount. That was the reason for the “first come, first served” basis.
I do not believe there is much of a case for a class action lawsuit. I do believe your best approach is to let your feelings be know to your state elected officials. It was their decision and their bills that created the the tax credit plan.
Steve