Yay! Free Money! Federal and California Tax Credits for Home Purchases
March 15, 2009
The good news is that there are both Federal and California Tax Credits available for certain qualifying buyers of homes that meet the requirements. Note that the Federal and California tax credits are very different from each other, and the methods for claiming the credit are likewise very different.
This summary is provided for general information only and does not apply to any individual situation. All buyers who are interested in qualifying for either or both of these credits are advised to consult with their own tax advisors.
1. FEDERAL TAX CREDIT (FIRST-TIME BUYERS ONLY)
Amount: $8,000 if home purchased in 2009, but no more than 10% of the purchase price of the home (half that amount if married filing separately). $7,500 if purchased before 2009.
Expires: December 1, 2009
Only First-Time Homebuyers Can Claim the Credit: In general, buyers can claim the credit if they are a first-time homebuyer. Buyers are considered a first-time homebuyer if:
- They purchased their main home after April 8, 2008, and before December 1, 2009.
- The buyer (and spouse, if married) did not own any other main home during the 3-year period ending on the date of purchase.
Main home. A main home is the one the buyer lives in most of the time. Not limited to new construction. It can be a house, houseboat, house-trailer, cooperative apartment, condominium, or other type of residence.
The Credit Cannot Be Claimed If:
- The buyer’s modified adjusted gross income is $95,000 or more ($170,000 or more if married filing jointly).
- The buyer is a nonresident alien.
- The home is located outside the United States.
- The buyer acquired their home by gift or inheritance.
- The buyer acquired their home from a related person.
No Repayment of Credit: There is no repayment of this credit if the home is purchased in 2009. However, the buyer must repay the credit if the home ceases to be their main home within the 36-month period beginning on the purchase date. (Note: For homes purchased before 2009, the tax credit is subject to repayment rules.)
2. CALIFORNIA TAX CREDIT (NEW CONSTRUCTION PURCHASES ONLY)
Amount: Up to $10,000. California allows qualified new home buyers a total tax credit amount equal to either five percent of the purchase price or $10,000, whichever is less.
Note: Taxpayers must apply the total tax credit in equal amounts over three successive taxable years (maximum of $3,333 per year) beginning with the taxable year (2009 or 2010) in which the new home is purchased. Special rules apply to married/RDP (Registered Domestic Partners) taxpayers filing separately.
Expires: March 1, 2010.
All Qualified Buyers Can Claim This Credit, Not Just First-Time Home Buyers: This tax credit is available for qualified buyerswho on or after March 1, 2009, and before March 1, 2010, purchase a qualified principal residence. The buyer must reside in the new home for a minimum of two years immediately following the purchase date.
Qualified Buyer: A taxpayer who purchases a Qualified Principal Residence that is purchased to be the principal residence of the taxpayer for a minimum of two years, and that is eligible for the homeowner’s exemption (under California Revenue and Taxation Code Section 218).
Qualified Principal Residence – New Construction: Any of the following can qualify if it is new construction (that is, it has never been occupied), is the buyer’s principal residence, and is subject to property tax, whether real or personal property: a single family residence, a condominium, a unit in a cooperative project, a houseboat, a manufactured home, or a mobile home.
First-Come, First-Served (or You Snooze, You Lose): California has allocated $100,000,000 for this tax credit. Buyers must apply for credit allocation from the Franchise Tax Board (“FTB”). Applications will be reviewed and credit allocations will be made on a first-come, first-served basis. Once $100,000,000 has been allocated, the tax credit will no longer be available.
How to apply: Within one week (seven calendar days) after the close of escrow:
· The seller must complete Part I of Form 3528-A, Application for New Home Credit, certifying that the home has never been occupied, and provide a copy to the buyer or escrow person.
· The buyer will complete Parts II & III of Form 3528-A.
· The escrow person on behalf of the seller and buyer will fax the completed Form 3528-A to FTB at 916.845.9754, and provide a copy to the buyer.
Fax is the only delivery method that will be accepted by, and considered for credit allocation by, FTB, as the date and time stamp on the fax will determine the order in which credits are allocated.
“Time is of the essence” on this one!
1. Remember, when the allocated amount of funds ($100,000,000) has been approved for credit by the FTB, there are no more tax credits available.
2. Also, Buyers only have one week after close of escrow to apply for the credit.
For more information on the California tax credit (and a running total of the amount of credit left to be allocated) go to: http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml#def2 or call the Franchise Tax Board at: 888.792.4900 (press 5)