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Claim Up to $18,000 in Combined Homebuyer Tax Credits

04-19-10
Sylvie Zolezzi

California is poised to launch a new tax credit of up to $10,000 on May 1, 2010 to help buyers get off the fence. Championed by Gov. Schwarzenegger, the $200 million program, $100 million for the First Time Buyer Credit and $100 million for the New Home Credit, is expected to keep sales moving along post spring-selling season.

Tax creditAs a result of this new program, home buyers in California have a brief window of opportunity to benefit from up to $18,000 in combined federal and state homebuyer tax credits. Given the first-come, first-serve allocation of the state credit, the fortunate homebuyers who successfully “double-dip” will likely consume an important piece of the state credit. Time should not be wasted, and all bets will be off on May 1 when applications can be faxed in. Credit Suisse builder analyst Dan Oppenheim estimates the tax credit will benefit about 14,000 new-home buyers, lasting as long as four to five months. To take advantage of both tax credits, a first-time homebuyer must:

  1. Enter into a purchase contract for a principal residence before May 1, 2010 (deadline for Federal Tax Credit of up to $8,000) and
  2. Close escrow between May 1, 2010 and June 30, 2010, inclusive, (for the California Tax Credit of up to $10,000).

Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits, i.e. $6,500 Federal Move-up/Repeat Home Buyer Tax Credit and $10,000 California Tax Credit.

FEDERAL TAX CREDIT:

How it works:

Hourglass1. Timeframe: Under the federal law slated to expire on April 30, 2010, a first-time homebuyer may receive up to $8,000 in tax credits, and a long-time homeowner may receive up to $6,500, for certain purchase contracts entered into by April 30, 2010 that close escrow by June 30, 2010.

2. Who qualifies:
a. First-Time Homebuyers (FTHBs):First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the First Time Homebuyer tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000.

b. Current Owners: The tax credit program gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for five consecutive years during the last eight years. Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

3. Income Caps: The amount of income someone can earn and qualify for the full amount of the credit is as follows:

a. Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

b. Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Sold Sign4. Maximum Purchase Price: Qualifying buyers may purchase a property with a maximum sale price of $800,000.

5. How to Claim the Tax Credit: You claim the tax credit on your federal income tax return.

6. Tax Credit vs. Tax Deduction:It’s important to understand that the tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in your taxable income that would only save you $1,000 to $1,500 when all was said and done. Let’s look at an example: if a first-time homebuyer were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.

Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!

For more information about the Federal Tax Credit, please visit the Federal Housing Tax Credit website. The Frequently Asked Questions Page of the Federal Tax Credit Website is a particularly useful resource.

CALIFORNIA TAX CREDIT:

Under the newly enacted California law, the legislation has allocated $200 million for more state tax credits—twice what was offered last year to 10,659 buyers of new, unoccupied homes. Under the newest housing stimulus, a homebuyer may receive up to $10,000 in tax credits as follows:

1. Timeframe:

a. These tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1, 2010, and before January 1, 2011. 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.

b. 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 Gov. Schwarzenegger

2. Who qualifies:

a. New Home Credit: Any home buyer (whether that buyer is or is not a first-time homebuyer) of a property that has never been occupied.

b. First Time Buyer Credit: A first time buyer of an existing home.

3. Limitations: 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 3 successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased.

4. Applications: Applications will be accepted by fax only beginning May 1, 2010 and will be made available by May 1, 2010.

5. 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 the program nears the $100 million cap, for homes that may not close escrow before the cap is reached. The reservation will "hold the taxpayer's place in line" until 2 weeks after escrow closes.

Tax credit6. Claiming the tax credit:

  • The taxpayer must receive a Certificate of Allocation from us to claim the tax credit on their California personal income tax return. The Certificate of Allocation will state the maximum amount the taxpayer can claim listed by tax year.
  • The taxpayer should refer to the 2010 New Home / First-Time Buyer Credit Publication for instructions on claiming the tax credit (the publication will be available by December, 2010).
  • Special rules apply to married/RDP taxpayers filing separately, in which case each spouse/RDP is entitled to one-half of the tax credit, even if their ownership percentages are not equal. For 2 or more taxpayers who are not married/RDP, the tax credit amount will have already been allocated to each taxpayer occupying the residence on their respective tax credit allocation letter.
  • If the available tax credit exceeds the current year net tax, the unused tax credit may not be carried over to the following tax year.
  • The tax credit may not reduce regular tax below TMT.
  • The tax credit is not refundable.
  • Any disallowance of the tax credit may not be protested or appealed.
For more information, please visit the 2010 Tax Credit for New Home/First Time Buyer State of California Franchise Tax Board Webpage or contact the California Franchise Tax Board at
888.792.4900 (press 1) or 916.845.4900 (not toll-free)

Email: wscs.gen@ftb.ca.gov. Please note that this is not a secure email address. Please do not send confidential information.

Please feel free to contact me at 415-464-3410 with any question about these programs or contact your tax advisor directly.

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