Tax Credits for California Home Purchases?
Thursday, January 7th, 2010
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!
Certainly due to this announcement there would be lot of opportunities for the job less personalities to get the new job.
Well, the announcement is one thing, but the proof is always what counts. We are awaiting the draft language for the bill to create the new housing tax credit. When it is in print, I will have more to say about it. When it becomes law, then I would hope to see a lot more jobs created by the housing starts!
Steve
Hi there, nice site with good info. I really like coming back here often. There’s only one thing that annoys me and that is the misfunctioning of comment posting. I usually get to 500 error page, and have to do the post twice.
[...] highlighted in my earlier post, the Governor has called for the re-institution of the Tax Credit for New Home Purchasers. We now [...]
Trinity,
Thank you for the comment. This is the first I have heard of such a problem. I will look into it some more …
Steve
So does this mean I can apply for both federal and california first time home buyer if qualified?
Baadja,
Yes, if you meet all the qualifications and close escrow on your California home between May 1, 2010 and June 30, 2010. In that circumstance, you would be eligible for both the Federal and California Tax Credits.
Steve
Steve,
I am not clear how the tax credit would be applied. Would it reduce my taxable income?
I recently filed my taxes for 2009 and got a refund of $225 from the state.
If this scenario is the same for 2010, would the $3,333 annual tax credit be beneficial to me?
Tim,
The key for the California Tax Credit is how much state tax liability you have? The tax liability is the total amount of tax owed to the State. Even though you received a refund of $225, does not mean your state tax liability was not $4,000 and you simply had a withholding of $4,255. Does this help?
The tax credit will be applied against the total amount of tax owed the State. Any refund will depend upon how much withholdings you started with.
For a more detailed answer, please talk with your tax professional.
Steve
If i buy a condo, will i qualify for the 10K tax credit? i already have a contract in process.
Alex,
The 2010 California Tax Credit can be applied to both detached and attached single family homes. A condo is generally regarded as an attached single family home. So, assuming you meet all the other qualifications, you should be eligible if you close escrow on your condo after May 1, 2010.
Steve
what I build my own home in CA and move into it – do I qualify for a credit
Alana,
That is really a question for your tax professional. I think the intent of the bill would be to allow new custom build, I’m just not sure the language is drafted clearly enough for me to say yes or no to your question.
You may also go on the Franchise Tax Board web site and submit a question to them about the tax credit. You may or may not get a direct response.
Steve
At first I was surprised that Arnold wanted this tax credit, but then as I read, I of course realized that they get their money back in property taxes and job taxes. I don’t like the way he’s running California, but I do think if a program helps everyone, then it should always be passed.
Right now, we need to keep more jobs coming so we can make the market improve more so homeowners can get out from under their mortgage and have some equity again.
AV,
I agree with you. At this time JOBS are the most important focus our legislators could have. I wish they took the time to understand the issues, as you have.
Steve