California Tax Credits for New Home Purchases – 2010
Tuesday, February 9th, 2010
As highlighted in my earlier post, the Governor has called for the re-institution of the Tax Credit for New Home Purchasers. We now have the first action by the California legislature to address that call to action.
SBX8 21, by Senator Ashburn has been introduced into the California State Senate. And, ABX8 34, by Assemblyman Jeffries has been introduced into the California State Assembly. Both of these bills would create a $10,000 tax credit per qualified buyer, to be paid over a three year period. Both bills are introduced into the Special Session #8 of the Legislature and could become law by passage during the special session. Both bills call for a May 1, 2010 start date, to coincide with the completion of the Federal Tax Credit program currently in place. For any other particulars of these bills, please see the links highlighted above.
The bill will normally undergo a series of changes as they work their way through the legislative approval process. Differences in the bills may arise as amendments and edits are made along the approval path of each chamber. There are a few key issues to keep watch over as the bills progress. First, the start date is a key issue. The Federal Tax Credit applies to purchase contracts entered into by April 30, 2010 and the home closes escrow by June 30, 2010. Starting the California Tax Credit on May 1, 2010 provides for a continuity of benefits available to the California purchaser. This continuity is important to maintain the construction of new homes (hence the benefits the State receives by offering the Tax Credit) and to support the confidence that is building in the demand for new homes. Any gap in this time line, from the Federal Tax Credit closing and the State Tax Credit opening, could create a hesitation in the minds of buyers and hence a slow down in the jobs recovery.
Another key issue is the direction to the Franchise Tax Board (FTB) to create a “reservation system” for the State Tax Credit. Again, modeled after the Federal Tax Credit, the reservation system allows buyers to contract for the purchase of a new home and receive a “reservation” of a future Tax Credit from the FTB. This approach allows buyers to purchase homes during the availability of the Tax Credit and close escrow at some time in the future, when the home construction is complete. It adds surety for the buyer that they will receive a Tax Credit and incentive for the home builder to create those needed construction jobs.
Most of the other qualifications for the Tax Credit remain consistent with the 2009 version. A new provision would cover First Time home buyers. The 2009 Tax Credit applied only to newly constructed homes, because of the greater surety around job creation and fiscal benefits to the state. The 2010 Tax Credit provides a portion of the Tax Credit Allocation be set aside for first time home buyers. There is no restriction for First Time home buyers to buy a newly constructed home. This provision will be a source of debate among the legislators. As proposed, the Ashburn and Jeffries bills each set aside $100 million for the qualified purchasers of newly constructed homes and $100 million for the purchase of homes by qualified first time buyers. This new provision will be ironed out through the legislative process.
Stay tuned for more information as the process unfolds.
Do either of these bills help the homebuyers that got their paperwork in to the Franchise Tax Board by July 2 but missed out on the credit because the money was gone? I know that SBX3-37 did address this issue.
Hi Paul,
The answer at this time is no. SBX8 21 and ABX8 34 do not provide tax credit dollars to those buyers that missed out on the 2009 Housing Tax Credit.
The bills do provide for a reservation system for the tax credit allocations going forward, so hopefully that issue will not re-occur should these bills get approved. But at this time the legislature does not seem willing to deal with the issue of those who missed out on last year’s program.
Steve
Steve,
Any update on how close these bills are to being passed? Have any modifications been made to the original text?
Hi Steve,
I am in the process of closing on a new home, will close in a couple weeks. If the credit is restarted in May, does that mean only homes that close escrow after the start date qualify? Will I miss out? And is a tax credit the same as a rebate?
Thanks, Stephanie
Patty and Stephanie,
Thanks for the questions. I am just about to post an update on the tax credits. Look for a March 17th post. I’ll give you the latest on where we are and what we can expect. Unfortunately, some of the answers are “we don’t know yet.”
Steve
Hi,
I have 2 questions:
1. Is there any further update on this extension of CA home buyers tax credit?
2. We closed on a house in Feb 22nd. Will we be eligible if the extension is approved?
Thanks, Kuga
Hi Kuga,
I just posted an update on the California Tax Credit legislation. Please review my latest information.
The current drafting of AB 183 would not allow a home which closed escrow in February of 2010 to qualify for a state tax credit. You should review the Federal Tax Credit for home purchases. This would be your best bet at this time.
Steve
Hi Steve,
I would appreciate if you can help me clarify the law. If I enter a contract to buy a new home as principal residence now and close the escrow after May1, 2010. Am I qualified to get the credit?
Thanks in advance!
–Henry
Henry,
The simple answer is probably yes. For more details see my response to the comments in my March 22nd post. You may be able to qualify for both the Federal and State Tax Credits in that May 1 thru June 30 window.
Steve
Hi Steve,
Thanks for responding to my question. My situation may not qualify for Federal Tax Credits as the home value exceeds $800K. I am talking about the $10K California tax credits (SBX8 21 and ABX8 34). Here is my main question. What is the “purchase date”? Is it the date for close of escrow or the date the contract is signed? Thanks!
–Henry
Thanks, Henry.
Yes if you are purchasing a home over $800k you will not qualify for the Federal Tax Credit.
As for the State Tax Credit, the magic date is May 1, 2010. There are two ways to acquire a State Tax Credit allocation. First, after May 1, 2010, you may enter into a binding agreement to purchase a home, and if you meet all the other requirements, you may request a reservation of the tax credit(before the allocation of $100 million for the Tax Credit is all claimed). . . Then, once you close escrow (before August 1, 2011) you have two weeks to submit your closing info to the FTB to request the tax credit allocation.
The other way to achieve a State Tax Credit is to close escrow after May 1, 2010, but before December 31, 2010 (or before the allocation of $100 million for the Tax Credit is all claimed). Again, you have two weeks after closing to submit for your tax credit allocation.
In 2009, buyers requested tax credits at the rate of 500 to 700 per week. We estimate this $100 million allocation will last between 5 and 7 months, IF THE RATE IS CONSISTENT WITH 2009.
We will follow the rate of claims and continue to report them on this blog site.
As always, consult your tax professional for specific recommendations regarding your personal circumstances.
Steve
I am currently in escrow and my loan should close sometime next week, and I have been told that I shoud expect to sign title papers by the end of next week, getting keys around April, 10th. Does this mean I will not qualify for the tax credit? Will it be retroactive?
Mark,
Given the dates as you have outlined them, you may qualify for the Federal tax credit, but you will not qualify for the California tax credit. To qualify for the California tax credit you would have to close escrow after May 1, 2010.
Steve
Hi Steve,
I am planning to buy a resale home next month, can you please suggest which is the best date range to buy my home to get both state and federal tax credit?
Thanks
Mike
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?
Eric,
The question of joint title can be a very messy one. In this case, I do not want to steer you wrong, so I will suggest you speak with your professional tax consultant before you finalize the title on you new home purchase. There may be ways to satisfy the State and your parents so that you can enjoy the California Tax Credit.
Steve
Hi Mike,
The key dates are April 30, 2010 and June 30, 2010 to achieve both a California and Federal Tax Credit. Here’s how it works:
For the Federal side, an enforceable agreement to purchase must be signed by April 30, 2010 and then the home must close escrow by June 30, 2010 to qualify. (Assuming you meet all the other requirements.)
For California, you must close escrow after May 1, 2010 to qualify. (Assuming you meet all the other requirements.)
The key here is the California date of May 1, 2010. Since this date is after the last date to enter into a binding agreement to purchase (as required by the Federal tax credit), you will not be able to take advantage of the tax credit reservation program offered by California. But that should not matter!
In California, if you have a binding agreement to purchase signed BEFORE May 1, 2010, you only need to close on that home by June 30, 2010 and then directly request the tax credit allocation. You do not need to request a reservation of the tax credit first!
Hope that clears it up for you!
Steve
Hi Steve,
Thanks for your reply.
If I sign the papers before April 30 th and close the escrow between May1st and June 30 th, then I get both Federal and State tax credit, correct?
But you also said that I will not be eligible for ‘tax credit reservation program offered by California’
Can I please know what is ‘tax credit reservation program offered by California’
Thanks
Mike
Hi Steve,
I got into contract on Mar 17th and is due to close escrow around April 14th. Does this mean that I am only qualified to get the Federal and not the State tax credit?
Thanks,
David
David,
You are correct. The California Tax Credit begins on May 1, 2010. You must close escrow after May 1, 2010 to request a California Tax Credit allocation.
Steve
Hi Steve,
I am going to purchase a home on 4/24/2010 (release date from the builder) assume that I’ve make it on the list on that day. On that day, I will be signing the contract but the house will not close until Sept I think because it is a new house being build right now for 824k.
Is that mean, I will not qualify for Federal tax credit because it is over 800K and the escrow is close after June 30?
How about State tax credit? Will I be qualify? and how do i get the paper work?
Thanks,
Susan
Hi Steve,
continue from the last email above. I know the State Tax credit begin on or after May 1 is the day but I am signing the contract on 4/24/2010 but not closing the escrow around Sept hopefully the house will be done by then.
Will I still be qualify?
Thanks,
Susan
Hi Susan,
You are right on track! Because your new home will cost more than $800,000, and it will not close on or before June 30, 2010, you will not be eligible for the Federal Tax Credit.
For the California State Tax Credit, since it is a new home and you will close escrow after May 1, 2010, you should be eligible for that credit.
The other condition for eligibility to keep in mind is the California State tax credit has a limited amount of money. The State allocated $100 million for the tax credit for new homes. The allocations are done on a first come, first served basis, starting May 1, 2010. The allocations are done after the close of escrow.
The 2010 California State tax credit has a new wrinkle. For binding agreements to purchase, signed on or after May 1, 2010, the Buyer may request a reservation of the tax credit. This was not available in the 2009 California State tax credit program. Once you have received a reservation, then upon close of escrow you may request an allocation of the tax credit from the Franchise Tax Board.
Talk with your builder about their plans for signing contracts on homes that will not be available to close until later in the year. You may be able to work something out.
Good luck,
Steve
Hi Steve,
Thank you for your prompt response. That mean I have to sign the agreement on or after 5/1/2010 in order for the buyer to request the reservation. The buyer has to put the requesst for me and then after escrow let say in Sept then I have to request the alllocation on my behalf with the State. What kind of paper work do I need to show them? I am not sure whether the builder can change the binding contract because that is the release date everybody need to show up and put in a deposit.
Thanks,
Susan
Susan,
Your builder will know about the paperwork for both the request of reservation and the request for allocation. They will help you file the paperwork with the Franchise Tax Board. (If they don’t, tell them to read my blogs. There are links in my blogs to the FTB website.)
Talk to your builder about putting a reservation on the new home you want to buy and then completing the paperwork for the “binding agreement to purchase” on or immediately after the first of May. I would be surprised if they will not accommodate you.
Or, come see a Brookfield community and we will be happy to help you out!
Steve
Hi Steve,
Thanks for your reply.
If I sign the papers before April 30 th and close the escrow between May1st and June 30 th, then I get both Federal and State tax credit, correct?
But you also said that I will not be eligible for ‘tax credit reservation program offered by California’
Can I please know what is ‘tax credit reservation program offered by California’
Thanks
Mike
Hi Mike,
Assuming you meet all the other eligibility requirements, then signing your binding agreement to purchase before April 30th and closing the home before June 30th, will give you an opportunity for both tax credits.
The California Tax Credit is on a first come, first served basis. The total allocation is $100 million for the first time home buyer. This amount should last for several months, but I have heard rumors from some realtors that the credit for first time home buyers will go very quickly, maybe even as fast as 30 days. I do not have any specific information to substantiate this claim, but I pass it along for your information.
The Federal Tax credit does not have a cap on the amount that can be allocated. So the dates are the key for that credit.
The 2010 California Tax Credit provides for the ability to request a reservation of a tax credit after the signing of a binding agreement to purchase a newly constructed home. But, that agreement can not be signed before May 1st. The reservation system is not available for the first time home buyers tax credit.
In addition, if you were to purchase a newly constructed home, then you would have to sign your binding agreement to purchase after May 1st, thus making you eligible only for the State tax credit.
Does that help?
Steve
Hi Steve,
Ya,Information you provided is very useful. Thanks
I am a first time home buyer and I am not buying a newly constructed home.
I also heared that they have a cap of 57% for first time home buyers, it means I get only 5,700$ out of 10,000$?
Do I get $3,333 / per year or I get only the state tax I paid after the minimun tax deduction(TMT), which ever is lower?
Thanks
Mike
Mike,
The 57% cap you heard about only refers to the way the Franchise Tax Board (FTB) will internally allocate the tax credit per first time buyer. That is, for each allocation of a tax credit for a first time buyer, the FTB will assume that $5,700 of the max $10,000 tax credit allocation will be used. This is because the majority of first time buyers will not have enough annual state tax liability to utilize the full $10,000 of tax credit. This also allows more first time buyers to take part in at least some of the tax credit amount available.
That being said … assume you are awarded a first time tax credit from the FTB. And, the purchase price of your home is at or over $200,000. Then you will be awarded a tax credit allocation of $10,000, on a use it or lose it basis. That means, you must have $3,333 of state tax liability for each of the next three years to utilize the complete $10,000 tax credit. If you have less than $3,333 in state tax liability in any of those three years, the difference between your liability and the $3,333 is lost. You may not carry it forward, backward or request a refund for the lost amount.
Got it? If so, you have earned your degree in the 2010 California State Tax Credit for home purchases! Congratulations!
Steve
Hi Steve,
Thanks a lot for the advice.
It’s very useful.
I appreciate your service.
Thanks
Mike
Mike,
You are very welcome. Best of luck with your home purchase!
Steve
Hi Steve,
Thank you. I will talk to my builder today to see if they will accomadation or not. I forgot to tell you that I am not a first time home buyer. Will I still be qualify for the State tax credit and this house is over 800k. Hopefully I can signed the paper on 5/1 and close anytime after Sept or Oct. Hopefully sooner.
THanks,
Susan
Hi Steve,
I was waiting on line on Friday for the house to be open on Sat and the builder said they will accomadate for 5/1 however they want me to see what paper work that i need them to sign. can you help me so I can bring to them On 5/1 for sign for the State. They have to sign on 5/1 rigth or after? Do they need to sign anything else after escrow or just need to sign for me to apply for the allocation? Can you point me to the right form?
Thank you very much,
Susan
Hi Steve,
I went to read thisi page http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml from your link but somehow i can’t find the request reservation form. Do they have it out yet or do I need to wait till 5/1? So I also need to fax the the signed contract date 5/1 or after right and an application (but not available yet till 5/1) right?
THanks,
Susan
Hi Steve,
Do you think there will be any money left for State tax credit by the end of Sept or October time slot because the house will be finish by then? If i apply by 5/1 for the reservation, willthe state hold my money for me by Sept or Oct time slot? or just first time first serve?
THanks,
Susan
Good morning Susan,
Lots of questions … let me see if I can answer most of the:
Congratulations on reserving your new home! The next step will be to sign your purchase agreement on Saturday and then submit the reservation request form.
Regarding the reservation form …you have visited the correct web site. Specifically, that site states:
“Reservations: Taxpayers who qualify for the New Home Credit may, but are not required to, reserve a tax credit prior to the close of escrow. Reservations will become important as we near the $100 million cap for homes that may not close escrow before the cap is reached, as a reservation will “hold the taxpayer’s place in line” until 2 weeks after escrow closes. To reserve a tax credit, the taxpayer and seller need to complete, sign, and fax to us a reservation request to certify that they have entered into an enforceable contract on or after May 1, 2010, and on or before December 31, 2010. A copy of the signed contract must be included with the reservation request. Taxpayers who reserve a tax credit still need to fax an application and a copy of the settlement statement within 2 weeks after the close of escrow. Taxpayers may not reserve a tax credit if the contract was entered into before May 1, 2010. We will post the reservation form and details about the process by May 1, 2010.”
The form does not appear to be available yet. Watch this blog during the week and I will let you know when it is available. Along with the form, you will need to send a copy of the purchase agreement. When the form is accepted, you will be given a reservation for a California Tax Credit. After you close escrow, you must submit the reservation, builder’s certification and other paper work required to receive your allocation of the tax credit.
I can’t say at this time how much impact the new “reservation system” will have on the availability of tax credits, nor for how long the tax credits will be available. My best advice is to utilize the reservation system. Otherwise, September may roll around and there will not be any tax credits left! The reservation system is meant to deal with the issue of running out of tax credits before a purchaser can close escrow.
Good luck,
Steve
Hi Steve,
Thank you so much for you quick response. I only have the receipt for the deposit on 4/24. I don’t thnk I have the signed contract yet . have an appt on 5/1 Sat at 10AM. to sign the contract. Hopefully the form to request for reservation will be available by then on the same day. Do they need to sign anything on that form? On the previous blog,you mentioned that I need to submit the request of reservation form and the contract agreement. Do i need to fill out an aplication as well or later after the escrow? THen I will fax to the State, the fax # is not available yet right and if it is safe to fax , can I send all of the paperwork instead?
Thanks again,
Susan
Hi Susan,
It sounds like you have a reservation. On Saturday, I believe you will walk through and sign your purchase agreement.
I anticipate the reservation form will become available later this week. My understanding of the process is that you may fill out the FTB reservation request form and submit on or after May 1st. I assume the fax number will be on the reservation application form.
I will post a blog as soon as I see any info on the FTB web site about the form or the process. Your builder will likely be watching for the same information.
Good luck,
Steve
Hi Steve,
Thanks again for all of the help. the seller agents are very busy, they want me to see what form that i need to fill out or need them to sign anything . They will do it but I need to follow through on my own. I don’t think they have time to keep track so I have to depend and read our blog to see what is coming. Now I know that I need to sign the contract on 5/1 and to see if the builder need to sign anything on the request of reservation form when it is available. THis is my first time doing this so i haven’t seen the form yet.
Hopefully the interest rate is not going up in Sept or in Oct when the house is complete.
Thanks,
Susan
Hi Susan,
Let me take a step back in our discussion …
You said you are buying a newly constructed home, at a cost of more than $800,000. Is that correct?
Are you a “first time home buyer”?
It doesn’t matter with the California Tax Credit, because if you are buying a newly built home you will be part of the new home construction allocation. I’m asking so that I make sure I am clear in my answers to you.
You are doing great so far!
As of this morning, there is still nothing on the FTB web site. I’ll check a couple times each day and post when the forms are available. (Don’t be surprised if it is Thursday afternoon or Friday before the FTB posts the forms.)
I am surprised and disappointed that your builder is not up to speed or taking care of these issues for you. That is not acceptable at Brookfield Homes. But, I believe we can get you and the builder through this process successfully!
As to the interest rate issue. Have you selected a mortgage lender? Ask them about a rate lock. The best mortgage lenders all offer rate locks, some for a small fee. The best of the best, offer rate locks that will credit you back the fee (if any) when you close escrow! In today’s uncertain world of mortgage lending, a rate lock is a very good idea to consider.
We’ll talk soon,
Steve
Hi Steve,
My husband bought the 2 beds condo that we are current reside right now in san jose,ca but my name was not on the title because at that time,BOFA said it is easier to use my husband income no need for me so we didn’t know that even though my name was not on the loan but I can still hold title under my anme and his name. IS that true?
. I was thinking to add my name on this newly construction home for 839k (price went up from the prior release 824k) in san ramon,ca. Not sure how to hold the title (another issue). So we are not first time buyer anymore.
We got preapproval with the builder but haven’t decide which lenders that we are going to use. They can only do for 60 days lock rate for .5- 1point for 5.0 interest rate right now but who know what is going to be in sept or Oct. We can lock until we find out that when the house closing to finish. We are hoping to lock at the low rate with no point.
There are no landscaping done for the front yard and backyard so we have to do it on our own. Can’t believe, buying a single home can be costly. Living in the condo, we justpay HOA fee, they take care forthe rest.
Thanks again,
Susan
Hi Susan,
You and your husband can hold title in a number of ways … as joint tenants, tenants in common, and as community property. Talk with your tax professional for the best way for you to hold title.
With the California new home tax credit, you need not worry about you or your husband being first time buyers. The key is you are buying a new home.
Wells Fargo has a 12 month rate lock and Bank of America is about to announce their new rat lock program. I would check with both of them.
Good luck with your purchase. I’m sure you will do fine with the new home and the buying process. You are asking all the right questions.
Steve
Susan,
The new forms have been posted! Go to my latest blog:
(http://blog.brookfieldsd.com/2010-california-housing-tax-credit-gets-new-info-from-ftb/)
for details.
Steve
Hi Steve,
Thank you so much for link. I just want to clarify for you. Tomorrow I will give the seller this for fill out: I’m still qualify to apply even though I am not a first time buyer right.
To Apply for a Tax Credit Reservation:
1. Applications will only be accepted by fax beginning May 1, 2010.
2. Use only the FTB approved Reservation Request Form.
3. The seller must complete Parts I, II & III.
4. The buyer must complete Parts IV & V.
5. Fax the form to the FTB at 916-855-5577 with the required pages of the purchase agreement. Do not fax the entire purchase agreement, only the pages which show the Property address, Buyer’s name, Seller’s name, Purchase Price, Deposit Amount, Buyer’s signature and Seller’s signature.
6. Fax submittal is the only accepted method of application!
Thanks,
Susan
Susan,
The California Tax Credit has two categories, new home and first time buyers. Only buyers of new homes can request a reservation of the tax credit. So you do not have an issue qualifying, because you are not a first time home buyer.
Assuming you meet all the other requirements (read the FTB web site for particulars), you should be good to go by filling out the appropriate form and including the requested pages from your purchase agreement, then faxing the whole package to 916-855-5577.
Good luck!
Steve
Hi Steve,
Good morning! I went to sign the contract with my husband on 5/1 and told them to add my name this time. However the seller agent said he need to have the seller to fillout Form 3549 -RR the part I,II,III and need to give it back to us sometime next time hopefully. I have a question reqarding my part IV, V. Escrow information : I don’t have the exact date of when to close escrow, the house probably finish by Sept or Oct 2010, Escrow #, i have the escrow company name, question #4 I need to answer yes, question #5 enter 10k – can I just estimate the date, escrow #? leave blank?
Part V- just fill out my name and husband name on buyer 1 and then submit the rest of the stuff that they name and fax.
How soon we need to fax it back, i’m just waiting for seller to fill out his part along with my purchase agreement.
Last time, you have mentioned that BOFA have the program that you can lock the rate for 1 year. When willthat program started and will they charge point for it if you lock in early?
Thanks,
Susan
Susan,
Sounds like things are going well. The builder should get you the form back quickly (I signed a couple of forms today for buyers from this past weekend).
The builder/seller should provide you with the name of the escrow company and a contact. The escrow company will provide you with the escrow #.
The answer to question 4 must be yes to qualify for the credit.
Question 5 is $10,000 for a home valued at +$800,000.
You can put in an estimated escrow date. Escrow should provide that for you.
Part V – correct, you and your husband’s info on the Buyer 1 lines.
You need to fax back as soon as you can, but a week or two shouldn’t matter.
I haven’t heard back from BofA. Wells Fargo has a one year lock on their mortgage program. I’m not sure if BofA will match that or be something less, like 6 months.
Congrats again, you are doing quite well.
Steve
Hi Steve,
We are the first time home buyer who is planning to apply California first time home buyer tax credit. We will close escrow tomorrow. Now neither seller nor escrow company wants to coordinate sending the form to FTB. The seller says he is not comfortable to fill out personal information with SS#. I contacted FTB and they said that the escrow company could cross out the seller’s personal information before send it to us. However, the escrow company told us that their legal department advised that the escrow company was not in the position of sending tax form to FTB, ask your tax accountant to send the form to FTB. FTB website indicates that it is the best that the escrow company fax the form to FTB. Have you encounter similar case? I feel I am stack in the middle.
Hi Steve,
Thank you. The seller agent did give me the name of the escrow company but no exrow #. I will contact the escrow company when the seller signed the paperwork and they are not sure of the closing escrow date because of the completion of the house. They just said Sept of Oct. I’m going to put Oct 1, 2010?
I will let u know once I got the sign paper FOrm 3549-RR back from the seller.
Thanks again,
Susan
Susan,
Good news! You are on the right track. Just stay on top of the escrow office.
Steve