Starting May 1, 2010 California will offer first-time home buyers and those buying new homes a tax credit of up to $10,000. These credits are available to taxpayers who purchase qualifying homes on or after May 1, 2010, and before January 1, 2011.

These tax credits will be handed out on a first-come, first-served basis until the state funding of $200 million ($100 million for each credit) is exhausted.

  In 2009, the $100 million funding for a similar credit program ran out in less than four months, so if you want a credit don't wait!

 

How Much Is the Homebuyer Credit?

Both tax credits are limited to the lesser of 5 percent of the purchase price or $10,000.  The tax credits are applied in equal amounts over three successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased.

Who Qualifies for the Homebuyer Credit?

 

In order to qualify for either of these credits you or your spouse/registered domestic partner (RDP) must be 18 or older, were not allowed to take the 2009 New Home Credit, are not related to the seller, and cannot be claimed as a dependent on someone else's tax return.

Your home must also meet certain requirements in order to be considered a “qualified principal residence” eligible for the credit.  To be eligible for either the New Home Credit or the First-time Buyer Credit the home you are purchasing must:

• Be a single family residence, either detached or attached. This means a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home would qualify. A home you have constructed is not eligible since the home has not been "purchased."

• Be eligible for the California property tax homeowner's exemption
• Be occupied by you as your principal residence for a minimum of 2 years immediately following the purchase (if you fail to meet this requirement you will have to repay any credit amount you receive)

California New Home Credit

In order to take the New Home Credit the home you are purchasing must have never been lived in.  The seller has to certify that the home has never been occupied in order for you to receive this credit.

 

First Time Homebuyer Credit

A first-time buyer is any individual who has not had an ownership interest in a principal residence, either in California or out-of-state, during the 3 year period prior to the date of purchase. If the buyer is married on the date of purchase and either the buyer or the buyer's spouse/RDP had an ownership interest in a principal residence during the preceding 3 year period, the buyer does not qualify for the First-Time Buyer Credit even if the spouse/RDP will not be on the title.

 

What If I Qualify for Both Credits?

Only one tax credit is allowed per taxpayer.  If you qualify for both tax credits (you are a first time home buyer who also purchased a qualifying new home), you will receive the New Home Credit.

 

How to Apply

An application form will be posted on the Homebuyer Credit page of the California Franchise Tax Board's Web site by May 1, 2010.  They will then accept applications by fax only.  Make sure you have the 2010 form because if you use the 2009 form, your application will be denied.
You must include a copy of a signed contract and settlement agreement (proof of closing escrow) with your application.

If all conditions have been met you will receive a Certificate of Allocation, which will state the maximum credit amount you can claim for each tax year.  Keep this for your records and as proof that you have been approved for the tax credit.  

 

How to Reserve a Credit Prior to Closing Escrow

If you qualify for the New Home Credit you can reserve a tax credit prior to the close of escrow by using a reservation request form, which will be available on the FTB website by May 1, 2010.  Reserving a credit may become important as state approved funds begin to dwindle, especially if you are afraid your home purchase might not close in time to get your tax credit.

Your reservation request form must be signed by the seller and include a copy of the signed contract.  You still have to fax in the application form with a copy of a settlement statement within two weeks after closing.  If you have an enforceable contract executed on or before December 31, 2010, and have reserved a credit, you have until August 1, 2011 to close escrow and still be eligible for a credit.

If you are applying for the First-Time Buyer Credit, you cannot reserve a credit and must wait until your escrow closes (escrow must close no later than December 31, 2010).