Last Thursday on March 25th, Governor Schwarzenegger signed into law a new home buyer tax credit that is designed to reduce the number of vacant homes and encourage new construction in California. The new law, AB183, allows for up to a $10,000 tax credit for all buyers of new construction homes and existing home purchases by first time homebuyers. This new law allows for $100 million in credits for new home buyers and $100 million in credits for first time buyers of existing homes.
First Time Homebuyers
- Can claim 5% of the purchase price up to $10,000 tax credit to purchase a new construction or existing home.
- A first time homebuyer is defined as an individual who has not owned a home in the past three years.
Non-First Time Homebuyers
- Non first time homebuyers can also claim the tax credit, but only if they purchase new construction.
The home must be a single family residence, either detached or attached, and must be used as the buyer’s primary residence for at least 2 years. The credit is worth 5% of the purchase price up to $10,000 claimed against your California taxes.
Existing home buyers claiming this credit must close escrow between May 1st and Dec 31, 2010. New home buyers can reserve a credit by entering into a contract to purchase between May 1st and Dec 31, 2010 and submitting the paperwork to the tax board. New homes must close escrow by August 1, 2011.
The credit is claimed over a 3 year period. You can claim up to $3,333 against your California state taxes in each of the next 3 years. If your tax obligation is not at least $3,333 in any of the 3 years, you will lose out on a portion of the credit. You can not apply the credit towards past or future years.
There was a similar tax credit last year and the funds for it ran out in 4 months. It is anticipated that these funds will be depleted before the end of the year. If you have your eye on buying a home this year and claiming this tax credit, you need to start your search soon.
For information on 2010 Tax Credit, you can visit State of California Franchise Tax Board.