The New California Home Buyer Tax Credit

arnold-taxcredit

We’ve received a lot of comments and questions about our post on the new California Home Buyer Tax Credit. We’ve updated the post to clarify a few points and answer our readers’ questions.

By now, I’m sure most of you have heard about the extension of California’s $10K home buyer tax credit, which Governor Schwarzenegger signed into law on March 25. I’ve had a couple clients ask me about this, so I thought I would pass some info on to our Sweet Digsters.

Here are the highlights:

The program:

  • California plans to spend around $200 million dollars to fund this tax credit.
  • This is twice as much funding as the state’s previous home buyer tax credit, which was rolled out in March 2009 and exhausted by July 2009.

Who is eligible?

  • The home buyer must be a California taxpayer.
  • There is no limit on the income of the home buyer.
  • The program is available to both existing homeowners and first-time home buyers.
  • Current homeowners are eligible only if they buy a newly-built home.
  • First-time home buyers are eligible whether they buy a newly-built or existing home.
    • To be a first time home buyer, you cannot have owned a home anywhere in the world during the three years prior to buying your new home. If you’re married, that applies to your spouse as well.

How much is the credit worth?

  • The tax credit is worth up to 5% of the purchase price of the home, or $10K, whichever is less.

How does the home buyer receive the tax credit?

  • The payment is credited against the home buyer’s annual CA state income tax.
  • The total payment will be spread evenly over three years.
  • If you qualify for the full $10K, you’d get up to $3,333 per year – but only if you pay at least that much in annual CA state income tax.
    • If your CA state income tax is $4,000 a year, you get a $3,333 credit against that amount, effectively lowering your state income tax to $667.
    • If you owe less than $3,333 per year in CA state income tax, you’ll receive a tax credit only for that amount. The extra will not roll over into the following year’s payment.
    • The credit will begin to be applied to the tax year in which the home was purchased. If you buy your home in 2010, the tax credit will begin to be applied against your 2010 taxes.
    • You cannot apply the tax credit to your 2009 taxes, even if you file your 2009 taxes after you purchase your home.

What’s the deadline for claiming the credit?

  • Buyers of existing homes must close escrow between May 1 and December 31, 2010.
  • Buyers of new homes can either:
    • Close escrow between May 1 and December 31, 2010, or…
    • If they are unable to close escrows during that time, they can reserve a credit by entering into an enforceable contract between May 1 and December 31. They must then file the proper paperwork with the tax board and close escrow by August 1, 2011.

What types of homes are eligible?

Can the new CA tax credit be combined with Federal Home Buyer Tax Credit?

Yes, but the window is very small. You will need to have your contracts signed by April 30, and you must close escrow between May 1st (when the California program begins) and June 30th (when the Federal program ends). The two programs combined could be worth up to $18K in tax credits.

However, remember to think carefully before diving in on a home purchase, regardless of any available tax credits. Buying a home is a major financial commitment. Don’t be lured into making a rash decision because you’re worried about missing out on “free” money. Instead, make sure that buying a home – with or without tax credits – is in your best long-term interests.

You can read more about the new California home buyer tax credit here.

Here’s the full language of the bill, AB 183.

Here’s California’s official website on the new home buyer tax credit.

Brad Le, Redfin agent serving Silicon Valley and San Jose

  • tyler

    I wonder if there is a maximum income limit to be qualified for that new CA homebuyer tax credit

  • http://www.redfin.com bryanhowell

    Hi Tyler,

    I’ve reviewed the language of the bill, and I can’t find any mention of an income limit for the CA tax credit.

    Here’s a link to the full text of the bill:

    http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0151-0200/ab_183_bill_20100325_chaptered.html

  • http://www.brookfieldsd.com Chula Vista New Homes

    The CA Franchise Tax Board says it’s the date that escrow closes, not the contract date that qualifies for the California tax credit.

    http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml: “The New Home / First-Time Buyer Credits are available only for purchases that close escrow on or after May 1, 2010.”

  • http://www.redfin.com bryanhowell

    Hi CVNH,

    Yes, you’re right about the close escrow date being the one used for the CA credit.

    Anyone buying a new home also has the option of reserving a tax credit by entering into a contract between May 1, 2010 and December 31, 2010. This gives them extra flexibility, in case they’re unable to close escrow by December 31, 2010. They would reserve the credit as described above, and could claim the credit by closing escrow by August 1, 2011.

    Buyers of existing homes don’t have that option — they must close escrow between May 1, 2010 and December 31, 2010.

  • E

    Does a townhouse or Condo qualify for the CA credit? The language specifically says “single family residence, attached or detached”. Does that include condos?

  • http://blog.redfin.com/blog/author/lisa.taylor Lisa Taylor

    Hi E,

    Condos absolutely qualify, as long as they’re purchased as the buyer’s primary residence. According to CA’s website about the credit, the list of eligible home types includes:

    “…a single family residence a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been “purchased.”"

  • Robert

    I just moved to CA from out of state. I owned a home in WA but never in CA. Am I still considered a “a first time buyer” (at least as far as CA is concerned)?

  • http://blog.redfin.com/blog/author/lisa.taylor Lisa Taylor

    Hi Robert,

    I’m afraid not. You may want to talk to a tax professional to be certain, but it appears that owning a home in any state in the past three years disqualifies you as a “first time” buyer.

    You could still claim the credit by purchasing a newly-built home, but not an existing home.

    Hope that helps!

  • blue moon

    Thank you for sharing the useful information.

    I wonder if I’m qualified this New California Home Buyer Tax Credit…
    I legally separated from my ex July 2007 and was a co-owner till last June when my name was legally moved from the deed.

    I’m planning to buy an existing home this year.
    I appreciate your input.

    Thank you!!!

  • DAVID WELLS

    i was wondering if i bought a new home and sign the contract by april 30th but escrow wont close until the house is finished getting built which will be in late july or aug will i still be able to get the federal tax credit or just the california one?

  • Marlon

    I am in a contract/escrow for my first home and I will be living in the front house; but there is a back house that is empty and I will be renting. Am I still eligible as a first time homebuyer?

  • Jack

    Can you people read? You are asking questions that are clearly covered in the above article.

  • http://www.redfin.com bryanhowell

    blue moon — I don’t think you’ll qualify for the CA tax credit on an existing home if you were the co-owner on a home until last year. You may want to speak to an attorney or tax professional, just to be sure.

    David Wells — As far as I can tell from the information you provided, you should be eligible for both tax credits. Your real estate agent should be able to confirm that for you.

    Marlon — I’ve sent an email to you, since I need some more specific information to give you a solid answer. Go ahead and reply to me when you get it.

  • http://riceball.com/d jk

    This tax credit benefits the upper middle class and wealthy more than it benefits the moderate-to-middle income buyer. It benefits people in the cities more than in the exurbs and rural areas.

    Kind of figures that Schwarzenegger would support a subsidy that works like that.

  • Professor Bear

    Glad to see a state that is over $20 bn in the hole always can find more money to throw down the real estate rat hole.

  • Mark

    Of course, the state just wants to artificially prop up housing prices as long as they can. The higher the property values are, the more property tax they can collect. As a buyer, I think it’s prudent to wait until all of the air is out of this market, including government tax credits.

  • James

    Does a duplex count toward this tax credit if you are living in one of the sides as your primary residence?

  • tan _11

    I just close escrow last week and my agent said he is not sure if i am qualified for both tax credit, i was in contract last march and closed last week, and the other one is what if the sellers would not give there SSN/ TIN #, I know its dangerous to give away SSN this days but CA Tax board want there info on it. Thank you Redfin, I am learning a lot.