February 27, 2009

Buy a new home, get a tax credit.

Late last week, California lawmakers approved a new budget that cut spending by $13 billion in an effort to reduce the state’s $42 billion deficit. Included in the budget is a provision allocating state funds for a $10,000 tax credit for home buyers.

The tax credit incentive represents hope for struggling home builders, but is it a repeat of the same thinking that brought about this economic turmoil? A large part of how we got into this mess was by making it easy for home buyers to temporarily afford a home, is this not another way of doing the same? Either way, it will be interesting to see how successful the tax credit is, and to see if it starts a trend in other construction dependent states.

The $10,000 tax credit is for home buyers that purchase a new home between March 1, 2009 and March 1, 2010. The bill set aside $100 million for the tax credit, so after 10,000 new homes are purchased, the credit is gone. Last month, an estimated 29,458 new and resale houses were sold statewide; if you want the incentive, you probably won’t want to wait until next March. Below are details about the tax credit.

1. The $10,000 tax credit is not a loan and if the home remains your primary residence for 2-years, you do not have to pay any portion of the tax credit back.

2. The tax credit is for new homes only. The construction of a new home generates more tax revenues than the $10,000 tax credit will cost, so the credit is limited to the purchase ovf new homes. You will not qualify for the state tax credit if you buy an existing home.

3. The tax credit is good for 5% of the home’s price or $10,000, whichever is less.

Examples: (price of home x .05)

• If you purchase a new home that costs $150,000, your tax credit will be $7,500.
• If you purchase a new home that costs $200,000, your tax credit will be $10,000.
• If you purchase a new home that costs $450,000, your tax credit will be $10,000.

4. Home buyers will receive the tax credit, in equal amounts, over 3-years.

Examples: (Tax Credit / 3)

• If your tax credit is $7,500, you will receive a tax credit of $2,500 each year for three years.
• If your tax credit is $10,000, you will receive a tax credit of $3,333.33 each year for three years.

5. Unlike the $8,000 federal tax credit, the California state tax credit is not limited to first-time home buyers.

6. There are no maximum income limitations so any buyer purchasing a previously unoccupied home can qualify for the tax credit.

7. The tax credit only applies if the purchased home is your primary residence.

8. There is no down payment requirement to receive the $10,000 tax credit.

9. The $10,000 state tax credit can be used along with the $8,000.00 federal tax credit for home buyers.  If you’re a  first-time home buyer, and you purchase a new home in California that costs more than $200,000, you’ll get $18,000 in tax credits.

10. The tax credit is limited to the first 10,000 new home purchases.

Information from sources deemed reliable but cannot be guaranteed.