California Tax Credit Bill on Governor's Desk

In a post last week, I described two bills that had the potential to stimulate California's ailing housing market. Today's post provides an update to the tax credit bill proposed by the Governor. On Monday, March 22nd, the state legislature overwhelmingly passed AB 183 (Caballero & Ashburn) which would provide $200 million for homebuyer tax credits. The Governor is expected to sign AB 183 into law before the end of the week.

The bill provides for up to a $10,000 tax credit (California Franchise Tax Board) to qualified principal residences. To qualify, you must either be:

• A First-Time Home Buyer - Any individual, or individual's spouse, who had no present ownership interest in a principal residence during the preceding 3-year period ending on the date of the purchase of the qualified principal residence.

OR

• A Purchaser New Construction - A home that has never been occupied.

Here are the bill's highlights:

• Must be the buyer’s principal residence (Single family home – Attached or Detached)
• Tax Credit equal to the lesser of 5% of the purchase price or $10,000
• Purchases must be made between May 1, 2010 and December 31, 2010
• Buyers under contract by December 31, 2010, must close on or before August 1, 2011 (subject to restrictions)
• Buyers must live in the home for a minimum of 2 years to receive full tax credit
• Tax Credit applied in equal amounts over 3 successive taxable years beginning with the year the home was purchased

If you are planning on taking advantage of this tax credit, there are provisions every home buyer should be aware of. Within 2 weeks after the date of purchase, the taxpayer needs to submit to the Franchise Tax Board a copy of the properly executed settlement statement (closing statement) and either a certification by the seller that the residence has never previously been occupied or a certification from the taxpayer that they are a first-time home buyer.

This is very good news for California's housing market and fills a gap that would have been created when the $8,000 Federal Tax Credit for First-Time Home Buyers expires on April 30, 2010 (homes must close escrow on or before June 30, 2010).