State Tax Credit FAQ
How much is the state tax credit?
The state tax credit is for $10,000 or 5 percent of the purchase price of a newly built home, whichever is less. The home must be the principal residence of the buyer for at least two years following the purchase, and the sale must close between March 1, 2009 and March 1, 2010.
How does the tax credit work?
• A tax credit of up to $10,000 credit (5 percent of home price or $10,000, whichever is less) for the purchase of a newly constructed, previously unoccupied home.
• Available March 1, 2009, until March 1, 2010, or when funding authority runs out – whichever comes first ($100 million was allocated to program).
• Allocated by the state’s Franchise Tax Board (FTB) on a first-come, first-served basis (details still to be worked out).
• Paid out to home purchasers over three tax years in equal amounts (i.e. $3,333 for 2009, $3,333 for 2010, etc.).
• Purchasers must reside in the home for at least two years.
• There are no income limitations that have to be met by purchasers.
• There is no first-time homebuyer requirement.
• There is no repayment requirement (unless the purchaser sells, rents out, etc., before two years expire).
What constitutes a purchase, for purposes of qualifying for a credit?
The FTB has determined that, for purposes of securing a homebuyer tax credit, a qualified purchase means close of escrow.
How does a customer obtain a tax credit?
The FTB has indicated that it will provide tax credit to buyers for escrow closings after March 1, 2009, until March 1, 2010, or until the statutorily authorized funding for the credit runs out, whichever occurs first. A buyer will receive a notice from the FTB following the close of escrow confirming the apportionment of a tax credit for that buyer’s purchase.
How will customers know if there are credits still available?
The FTB has promised to keep and publish – as often as daily – a running total of how much funding remains from the original $100 million set aside for the program.
Will I receive the credit if I buy an existing home?
No. The credit is only for the purchase of a newly built home that has never been occupied.
How much money is available under the program?
The law limits the total amount of credits that can be claimed to $100 million. Credits will be allowed on a first-come, first-served basis. When the $100 million runs out, the state tax credit program is over.
Where can I go for more information about the tax credit and find out if I qualify?
Consult the FTB website at www.ftb.ca.gov. The FTB is the agency responsible for administering the tax credit and will have information, including all necessary forms available on their site.
Can the credit be used in conjunction with the recently enacted federal tax credit?
Yes. The state homebuyer tax credit ($10,000) and the federal credit ($8,000) can be used together, but there are conditions that must be satisfied:
• The state homebuyer tax credit applies only to new, previously unoccupied homes.
• The federal tax credit is limited to first-time homebuyers.
• The federal tax credit is also limited to individuals with annual incomes of $75,000 or dual filers of $150,000. Lower-valued credits are available to individuals with incomes up to $95,000 and $170,000, respectively. Consult www.federalhousingtaxcredit.com for more information on this and other aspects of the federal tax credit.
• Both the state and the federal homebuyer tax credit require the purchaser to maintain occupancy of the home for a period of time following the purchase – two years for the state and three years for the federal credit. Both tax credits must be repaid if the purchaser fails to meet these occupancy requirements.
• To qualify for both: A homebuyer who qualifies for both credits (up to $18,000) must buy a new home; can't have owned one in the last three years; must have an individual annual income of $75,000 or less; and must live in the home for at least three years. Also important to remember regarding the use of both credits is that the state homebuyer tax credit is paid out over three years (i.e. $3,333 per year, based on a $10,000 credit), whereas the federal credit is a one-time tax benefit.
What procedures need to be followed to process the tax credit with FTB?
FTB has put in place a specific procedure for reserving the homebuyer tax credit for qualified buyers, that includes the following:
• The preparation by FTB of a form that allows.
• Sellers to certify that eligible homes have never been occupied.
• Buyers to declare their intention to occupy the eligible home as their principal residence for at least two consecutive years immediately following the purchase.
• The publication of said certification form on the internet, which may be downloaded and completed by the seller before close of escrow.
• The requirement that the completed form be faxed to the FTB within seven calendar days of the close of escrow. FTB requests this because the computer managing the program creates a file for each tax credit the escrow agent separately fax forms for each home.
• The plan of the FTB, following receipt of the certification form, to send a letter to the buyer confirming (or not) the buyer’s initial eligibility for the homebuyer tax credit.
