California Home Buyer Tax Credit

The state tax credit isn’t as attractive as the Federal Tax Credit for first time homebuyers, which was a true credit, regardless of whether you pay or owe taxes. This state “credit” is spread out over three successive tax years, at a max of $3333 per year, and is a credit to be used for actual taxes OWED. The tax credits cannot reduce regular tax below your tentative minimum tax (TMT). It is nonrefundable and unused credits cannot be carried over. So, you need to owe up to the max to get the full benefit.

The 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.

The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. The state 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.

Property must be occupied by the taxpayer as their principal residence for a minimum of two years immediately following the purchase.

A first-time buyer is any individual (and the individual’s spouse/RDP, if married) who did not have an ownership interest in a principal residence during the preceding 3 year period ending on the date of the purchase of the qualified principal residence.

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 state nears the $100 million cap for homes that may not close escrow before the cap is reached.

To reserve a tax credit, the taxpayer and seller need to complete, sign, and submit a reservation request to certify that they have entered into an enforceable contract on or after May 1, 2010, and on or before December 31, 2010. A copy of the signed contract must be included with the reservation request.

If you are only applying for the First-Time Buyer Credit, you will not be able to reserve the tax credit before escrow closes. Final closing statement must be filed within two weeks of closing to be eligible.

For complete information and forms, go to http://www.ftb.ca.gov/individuals/new_home_credit.shtml