On March 25, 2010 a new law, AB 183, was signed by Gov. Arnold Schwarzenegger as a 2010 Tax Credit for new home / first time buyers; the law allocates $200 million to be used for tax credit incentives to homebuyers for homes purchased between May 1, 2010 and August 1, 2011. That’s twice the amount allocated to a similar state credit passed for purchasers of new homes last year. Those funds were quickly depleted; potential buyers, as well as builders, have been asking for the credit’s return ever since.
This initiative is called the California New Home Credit and First Time Buyer Credit. A brief summary of the new credits is shown below. To read the entire article about it on the Franchise Tax Board web site, go to CA Home Credits.
These tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1, 2010, and before January 1, 2011. Additionally, these tax credits are available for taxpayers who purchase a qualified principal residence on or after December 31, 2010, and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010. The purchase date is defined as the date escrow closes. Taxpayers may apply for the tax credits if they have entered into a contract before May 1, 2010, as long as escrow closes on or after May 1, 2010. These tax credits are limited to the lesser of 5 percent of the purchase price or $10,000 for a qualified principal residence. Taxpayers must apply the total tax credit in equal amounts over three successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased. The tax credits cannot reduce regular tax below tentative minimum tax (TMT). The tax credits are nonrefundable and unused credits cannot be carried over. We will allocate the tax credits on a first-come, first-served basis. Only one tax credit is allowed per taxpayer. If a taxpayer qualifies for both tax credits, the law specifies that we will allocate the amount under the New Home Credit.
If you are thinking seriously about buying your first home or upgrading to a larger residence, now is a good time to make your move. Average home prices continue to be at levels not seen since 2003/2004, and interest rates are still historically low. However, all indications are that interest rates are going to be trending up soon. So it’s smart to buy now and take advantage of both the low interest rates and the tax credit incentive while they are still available.