NORTH BAY – Gov. Arnold Schwarzenegger signed a new Homebuyer Tax Credit bill into law effective May 1.
Assembly Bill 183 sets aside $200 million, $100 million for first time homebuyers and $100 million for new home purchasers.
The credit will be paid out to homebuyers over the course of three years.
California’s previous homebuyer tax credit program ran out at the end of June 2009, eight months before it was set to expire. Unlike last year’s legislation, which was only for the purchase of new homes, this year’s Homebuyer Tax Credit adds a tax credit for the purchase of an existing home by a first-time homebuyer.
“The positive impact of the homebuyer tax credit at the federal level is clear,” California Association of Realtors President Steve Goddard said. “Nearly 40 percent of first-time homebuyers said they would not have purchased a home if the federal tax credit for first-time homebuyers was not offered," according to C.A.R. research conducted last year. "We expect the state tax credit for homebuyers to have the same impact.”
But the credit is not like the federal tax credit.
“This is a subtractive tax, meaning that it will cancel out dollar for dollar what a taxpayer owes, but unlike the federal credit, if nothing is owed, or less is owed than the taxpayer qualifies for, the credit is lost.
“Most people are not going to be getting the full benefit of the $10,000,” said Brenda Voet, spokeswoman for the Franchise Tax Board.
She said that based on historical tax filing, most people will get roughly 57 percent, or a $5,700 credit, as a first-time homebuyer, and 70 percent or $7,000 as a new homebuyer.
The first-time credit is expected to last only six to eight weeks, she said, while the new home credit should go for six months.
“Because this is subtractive of the state tax you would owe and you won't get the difference,” said Timothy Brown, Realtor with Creative Property Services in Santa Rosa, “it will not have the impact the federal tax credit did.”
This act provides a credit under the Personal Income Tax Law to an individual who is purchasing a qualified principal residence in an amount equal to the lesser of 5 percent of the purchase price or $10,000.
The credit is allowed for purchases made on or after May 1, 2010, and on or before Dec. 31, 2010. A contract must be executed by Dec. 31, 2010, for purchases occurring on or after Dec. 31, 2010, and prior to August 1, 2011.
The act requires that the credit is claimed in equal amounts over three taxable years, beginning with the taxable year in which the purchase of the residence is made. An individual taxpayer is allowed one credit for the purchase of one qualified principal residence.
Qualified principal residence means a single-family residence, whether detached or attached, that is purchased to be the principal residence of the taxpayer, is eligible for the home exemption and has either never been occupied or is purchased by a first-time homebuyer.