Thursday, June 17, 2010

California first-time home buyer tax credit running out

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Time is running out to qualify for California's first-time home buyer tax credit.

The state Franchise Tax Board announced today it has received applications claiming about 80 percent of the credit. Although it's hard to predict, tax board spokeswoman Denise Azimi says the credit could be gone within a few weeks.

In March, the state Legislature approved $100 million in state-tax credits for first-time home buyers who purchase a new or existing home in California. To qualify, the buyer must close escrow after May 1 and before the $100 million runs out.

The credit is 5 percent of the purchase price or $10,000, whichever is less, spread over three years. To make full use of the credit, the buyer would have to owe at least $3,333 in California income taxes in each of those three years.

Because many first-time buyers won't owe that much tax and lose part of their credit, lawmakers allowed the tax board to reduce the $100 million pot by only 57 percent of the credit claimed by each buyer. If a buyer requested a $10,000 credit, the pot would shrink by only $5,700.

As of Tuesday, the FTB had received more than 15,000 applications claiming more than $78 million in (post-reduction) credits. Because many applications are duplicates or invalid, FTB said it plans to accept at least 28,000 applications to make sure the full $100 million is awarded.

The FTB, which has been posting weekly updates on its Web site showing how much of the credit remains, will announce the cut-off date at least 24 hours in advance so people can fax their documentation. The credit will be allocated first-come, first-served based on the time and date stamp on the fax. The FTB warns that submission before the cutoff does not guarantee a credit; it will stop allocating credits once the $100 million is gone.

A first-time buyer is someone who did not own a principal residence for the preceding three years. The buyer must reside in the home for at least two years immediately following the purchase date.

At the same time it approved the first-time home buyer credit, the Legislature approved a separate tax credit for people who already own a principal residence who purchase a brand new (but not an existing) home. This credit is also worth up to $10,000, spread over three years.

This program also has $100 million in credits available, but the money is not close to running out. Buyers can reserve a credit by entering into a binding contract between May 1 and Dec. 31 and closing before Aug. 1, 2011. Because more repeat buyers will be able to take full advantage of the credit, this $100 million pot will be reduced by 70 percent of the tax credit allocated to each buyer. As of Tuesday, the tax board had received only 5,630 applications and reservation requests for this tax credit, totaling about $36 million after the reduction for unused credits. That leaves about $64 million remaining for repeat buyers purchasing a new home.

For more information, see here.

Posted By: Kathleen Pender (Email) | Jun 17 at 03:20 PM

Listed Under: Housing, Real estate, Taxes