California residents need to act fast on Homebuyer Credit
May 1, 2010 was an active day for the California real estate community. Many people were hurriedly closing home purchases in order to not only take advantage of the final day of the federal First-Time Homebuyer Credit, but to also take advantage of the FIRST day of the California New Home/First-Time Homebuyer Credit (“New Home Credit”). This new California Credit mimics the federal credit in many ways, but also has important differences, most significant of which is the time table for the Credit to sunset.
The New Home Credit is available for home purchases that close on or after May 1, 2010 and before December 31, 2010. However, if a qualifying homebuyer enters into an enforceable contract by December 31, 2010, they have until August 1, 2011 to actually close the purchase and still qualify. The Credit is the lesser of 5% of the total home price or $10,000.
There are a variety of limitations on when and how a taxpayer can take the Credit. The home purchased must be located in California, and it must be used as the taxpayer’s primary residence for at least two years following the purchase. The home must either have never been previously occupied (i.e. a brand new home), or the buyer must not have purchased and lived in a primary residence within the three year period preceding the 2010 home purchase (i.e. a so-called “first time” homebuyer).
In order to receive an allocation of the Credit, the buyer must “reserve” the Credit by supplying the California Franchise Tax Board (FTB) with an application Form as well as a copy of the settlement agreement. The requirements of the application process are very strict, and merely faxing in a copy of the HUD-1 with the application generally won’t suffice. Taxpayers applying for the Credit need to be sure they are supplying the correct information.
Finally, and most importantly, there is a finite amount of available Credit dollars. Some of you may remember California’s first incarnation of this credit, which was available in 2009. For that credit, the state allocated $100,000,000 and the entire allocation was exhausted in three months. This year’s allocation is double the 2009 amount - $200,000,000 – but still might run out well in advance of the December 31st deadline for claiming the credit.
Taxpayers wishing to cash in on this California tax incentive, along with the somewhat depressed prices for California real estate, would do themselves well by moving quickly on these plans because the Credit could run out before you know it. In this case, haste does not necessarily make waste.