California State and Federal Homebuyer Tax Credits

For California homebuyers, tax time is now tax relief time as well. There are two recent laws, which give California homebuyers the potential to qualify for up to $18,000 in tax credits for buying his or her piece of the American dream. The two tax credits consist of a Federal tax credit of up to $8,000 for resale homes, and a California State tax credit of up to $10,000 for new homes. Below you will find a quick overview with frequently asked questions regarding the two tax credits. This guide is simply for informational purposes, I always highly recommend that you seek professional counsel from an attorney and/or CPA to determine the legal and tax consequences of how this incentive my benefit you. The overview below is provided for information purposes only.

What is the amount of the Tax Credit?

Federal - 10% of the purchase price not to exceed $8,000

State - 5% of the purchase price, not to exceed $10,000. The maximum tax credit for all taxpayers is $100 milion which is to be allocated on a first-come first-served basis.

What types of property qualify for the tax credits?

Federal - Single family residence, condominium, townhome, manufactured home, apartment cooperative, houseboat, housetrailer, or other type of property located in the United States.

State - Single family residence, whether detached or attached, condominim, cooperative project unit, houseboat, manufactured home, or mobilehome.

Do the Tax Credits qualify for my principal residence?

Federal - Yes. Property purchased must be the taxpayers principal residence which is generally the home that the taxpayer lives in most of the time (26 U.S.C. 121)

State - Yes. Property purchase must be a qualified principal residence and eligible for the homeowner's exemption from property taxes (Cal. Tax & Rev. Code 218).

Do I need to be a First-time Homebuyer?

Federal - Yes. The buyer (and buyer's spouse if any) must not have owned a principal residence during the three-year period before date of purchase.

State - No. The buyer does not need to be a first-time homebuyer.

Does the property need to have never been occupied?

Federal - No. Property may have been previously occupied or not

State - Yes. Property must have never been previously occupied as certified by the seller.

What is the minimum occupancy required?

Federal - The property must be the buyer's principal residence for 36 months after purchase, otherwise the credit must be repaid.

State - The property must be the buyer's principal residence for 2 years following purchase, otherwise the credit must be repaid.

Are there any income restrictions?

Federal - Yes, Tax credit begins to phase out if modified adjusted gross income is greater than $75,000 (or $150,000 for joint filers). No tax credit is given if modified adjusted gross income is over $95,000 (or $170,000 for joint filers).

State - There are no income restrictions.

What is my time frame to purchase and still qualify?

Federal - January 1, 2009 to November 30, 2009 inclusive. (Note: A repayable $7,500 tax credit is available for purchases from April 9, 2008 to December 31, 2008).

State - March 1, 2009 to February 28, 2010, unless the allotted funding runs out.

Are the Tax Credits Refundable on my taxes?

Federal - Yes. Any amount of the tax credit not used to reduce the tax owed may be added to the taxpayers tax refund check.

State - No.

Do I need to repay any of these Tax Credits?

Federal - The buyer does not need to repay the tax credit if the buyer owns and occupies the property for at least 36 monts after the purchase.

State - The buyer does not need to repay the tax credit if the buyer owns and occupies the property for at least two years immediately following the purchase.

What if there are multiple (unmarried) purchasing together?

Federal - The $8,000 tax credit may be allocated between eligible taxpayers in any reasonable manner.

State - The $10,000 tax credit may be allocated between eligible taxpayers based on their percentage of ownership.

What is the maximum amount of funds allocated for each credit?

Federal - N/A.

State - $100 million.

When do I claim my tax credit?

Federal - Full tax credit may be claimed on 2008 or 2009 tax returns.

State - 1/3 of the total tax credit may be claimed each year for 3 consecutive years (e.g. $3,333 for 2009, $3,333 for 2010, and $3,333 for 2011).

Which tax agency is allowing this credit?

Federal - Internal Revenue Service (IRS).

State - Franchise Tax Board (FTB).

How to file for your Tax Credits?

Federal - First-time Homebuyer Credit (IRS Form 540S) must be filed with the 2008 or 2009 tax returns.

State - Specific procedure for claiming credit includes completing an Application for New Home Credit (FTB Form 3528-A).

When do I file these forms?

Federal - Form 540S must be filed with 2008 or 2009 tax returns.

State - Franchise Tax Board Form 3528-A must be faxed by escrow to the FTP within one week after close of escrow and filed with the buyer's 2009 or 2010 tax returns.

Are there an Exceptions?

Federal - Acquisitions by gift or inheritance, acquisitions from related persons as defined, and buyers who are nonresident aliens.

State - Credit allowed is not a business credit under Cal. Tax & Rev. Code 17039.2.

Legal Authority:

Federal - 26 U.S.C. section 36.

State - Cal. Rev & Tax Code section 17059 (as amended by Senate Bill 15).

When were these Tax Credits Enacted?

Federal - February 17, 2009.

State - February 20, 2009

For additional information please use the links below

Internal Revenue Service (IRS) Website

Franchise Tax Board Website - Which includes a tally of the $100 million original funding that is still available.

Information herein is courtesty of North American Title Company. All information presented herein is intended and should be used for educational purposes only. Nothing herein should be construed as investment advice. You should always conduct your own research, due diligence and obtain professional advice before making any investment decision as all investments involve some degree of risk. Jerod Mayer or RE/MAX of Valencia. will not be liable for any loss or damage caused by your reliance on information contained. Jerod Mayer or RE/MAX of Valencia does not guarantee and is not responsible for the accuracy or completeness of information, and provides information without warranties of any kind.