Brookfield Homes

California’s Governor Arnold Schwarzenegger is proposing a return of the Housing Tax Credit.

In his last State of the State address, the Governor announced his upcoming budget proposal (to be released on Friday) would include $200 million for Tax Credits to home buyers in California. Based upon the success of last year’s New Home Purchase Tax Credit, the Governor will propose to the Legislature that the purchasers of each new and resale home in California be granted up to $10,000 of State Tax Credit (within specific guidelines and time frames).

The idea for a California Home Purchase Tax Credit is driven by a number of factors. First, the incentive for providing the Tax Credit is the creation of new jobs. As highlighted by the California Building Industry Association (CBIA) a Tax Credit for the construction of each new home in the state generates up to 3 new jobs. Second, the Tax Credit has been shown to also generate up to $10,000 of new State revenues (through sales, income and property taxes) and up to $3,000 of local revenue (through sales and property taxes). And third, the Tax Credit also helps stabilize neighbor home prices through increased demand and sales activity.

A new twist on the proposal this year is the provision to utilize the Tax Credit for resale home purchases. This change follows the recent Federal Housing Tax Credit extension plan, which opened up the Federal Tax Credit to any purchaser of a home, not just to first time home buyers.

A number of issues will need to be worked out with the Governor’s proposal. For example, it is likely that the new State Tax Credit will follow the guidelines utilized by the 2009 Housing Tax Credit, requiring the credit amount to be spread over three years and limiting the credit amount to the amount of state tax owed by the home buyer, not to exceed $3,333 per year. Additionally, by placing a limit on the Tax Credit allocation of $200 million and opening the Tax Credit eligibility to resale and new home buyers, the Franchise Tax Board (FTB) will need to create a program allowing prospective home buyers to reserve an allocation of the limited Tax Credits at the time a purchase contract is signed for the home sale. There may also need to be a division of the Tax Credit allocation between new and resale home buyers, as the resale homes will be more available and will dominate the sales activity in the early weeks of the Tax Credit life. While this may sound like a “so what?” to most people, the job creation aspect of the stimulus provided by a Tax Credit will not achieved if only a small number of new homes buyers are able to take part in the program.

And, finally, remember this is a proposal. The Governor can not make the law, he can only approve a law drafted by the Legislature. The Governor’s budget proposal contains the provision for a Housing Tax Credit. The Administration will need to work with the State Senate and Assembly to craft the language, the rules and the “where as-es” to draft a Bill that creates a Tax Credit for California home buyers. As they say … “the devil is in the details”. Stay tuned as the adventure begins again!

A little further clarification on the Federal Tax Credit for the purchase of a home:

For First Time Home Buyers

Maximum price for the purchased home is $800,000.

New home must be the principle residence of the buyer(s) for the next three consecutive years.

Income limitations $125,000 for full credit by a single buyer, (up to $145,000 for partial credit), $225,000 for a married couples for full credit, (up to $245,000 for partial credit).

First Time Buyer must be at least 18 years of age, may not be a dependent on someone else’s tax return and may not have owned a home in the past three (3) years.

The purchase may not be of a home from a direct lineal ancestor or descendant.

The Tax Credit is based upon 10% of the purchase value, up to a maximum of $8,000.

The Tax Credit is fully refundable, meaning if you owe less than $8,000 in tax liability, the IRS will send you the difference.

The new limitations (for income, qualification of the buyer and source of the purchased home) all became effective on November 6, 2009 and will remain in effect until a purchase contract is signed, no later April 30, 2010, and the home closure, no later than June 30, 2010.

There are special rules for members of the armed forces who have been stationed outside the United States for at least 90 days. Please consult you professional tax adviser for how these rules may impact your decision to purchase if you are a member of the armed forces.

For homes purchased prior to November 6, 2009, the rules of the original First Time Home Buyer Tax Credit still apply.

For the Move-up Home Buyer

All of the above qualifications and restrictions apply, except the Tax Credit is limited to $6,500, the Buyer must have established a permanent residence in another owned home for at least 5 of the previous 8 years and the final point regarding the “original” legislation does not apply . There was no Move-up Home Buyer Tax Credit in the original legislation, so to be eligible to apply for this Tax Credit is limited to homes purchased after November 6, 2009, the effective date of this legislation, signed a contract before April 30, 2010 and closed escrow by June 30, 2010.

As with all tax related decisions, I recommend you discuss them with your professional tax adviser, because your individual circumstances may create other opportunities or alternatives.

For additional information please refer to the following websites:

National Association of Realtors

National Association of Home Builders

Internal Revenue Service

Wall Street Journal

The President did sign the bill on November 6th that extends the First Time Home Buyer Tax Credit and creates the new Move-up Home Buyer Tax Credit. The National Association of Realtors was a leading force in pushing for this legislation. They put out a Frequently Asked Questions sheet that I believe is very helpful. For example:

The Move-up Home Buyer Tax Credit is available today for buyers that are in escrow and meet the income and ownership guidelines!

I you are a First Time Home Buyer, who is currently in escrow, and meets the other income and ownership guidelines, but your escrow was scheduled to close after December 1st, you are now eligible for the Tax Credit, without any further changes to your purchase or escrow documents.

As more information becomes available, I will pass it along!

The US Senate and the House of Representatives have voted on an extension of the Federal Housing Tax Credit, with a new twist! The passage of H.R. 3548 provides for an extension of the existing first-time home buyers tax credit of $8,000 AND provides a new tax credit for move-up buyers of $6,500! The legislation is expected to be signed by the President on Friday, November 6th!

First time home buyers will be eligible for the Federal Tax Credit if they meet the criteria of the original Tax Credit legislation, namely:

1. An income limitation of $75,000 for a single purchaser or $150,000 for a couple.

2. The Tax Credit is limited to 10% of the purchase price of the home or $8,000, whichever is less.

3. The purchaser must be a first time home owner and the residence must be their principle residence.

For the new Move-up home buyer the criteria is similar:

1. You must have owned your current home for 5 or more years.

2. The income limitations are $125,000 for a single or $250,000 for a couple, but above those limits the $6,500 Tax Credit may be available on a phase out basis.

3. The home must be your principle residence and may be priced up to $800,000.

For both groups, the Tax Credit will be available to those purchasers who sign a contract to purchase by April 30, 2010 and close escrow no later than June 30, 2010. (The credit may be extended for up to 12 months for purchasers who are serving in the military outside the United States for at least 90 days. Further clarification on this provision will be forth coming.)

Senator Johnny Isakson (R-Ga) believes this will be the last Tax Credit extension for home buyers. If you are interested in your first new home or would like to move-up to a new home, now is the time to be buying. The Federal Tax Credit is being given a one time extension … think of it as a great Christmas present!

HUD Secretary Shaun Dunn has announced a new use for the $8,000 Federal Tax Credit. HUD’s Mortgagee Letter 2009-15, dated today, May 29, 2009, outlines the government’s position on the expanded use for these dollars.

Generally speaking, FHA qualified lenders will be allowed to loan against, or purchase the credit from the buyers, under specific guidelines and regulations. This will provide the buyer with additional funds to supplement their minimum 3.5% down payment or to cover closing costs.

This is one more way to help home buyers utilize all the tools available to them. However, the Federal Tax Credit program is set to expire on December 1, 2009. Home buyers must close escrow by that time to qualify for the Tax Credit. If you qualify for the Federal Tax Credit for first time home buyers, now is the time to be looking for your new home!