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Recognizing how important homebuilding is to job creation and to economic recovery, the federal government and California State Legislature are providing consumers with tax credits that make right now a great time to buy a new home.
The federal government is offering up to an $8,000 tax credit to first-time homebuyers. A state tax credit of 5% of the purchase price (or $10,000, whichever is less) is being offered to anyone who buys a new home. Interest rates are low and qualified buyers can buy with as little as 3.5% down.
Consumers need to act quickly.
The tax credits are a limited time only offering and homebuilders statewide are reporting more traffic and an increase in sales as potential homebuyers realize these deals won’t last forever. The federal tax credit expires on November 30, 2009. California put a limit on its state tax credit and will allocate it to homebuyers on a first-come, first-served basis. There are approximately 10,000 tax credits available.
According to the California Franchise Tax Board’s website, more than 700 applications for the state tax credit have already been received since the March 1 start date.
How does the state tax credit work?
• Buyers must close escrow on a new, previously unoccupied home between March 1, 2009 – February 28, 2010.
• These homebuyers apply the $10,000 tax credit to their state income tax returns over three successive years ($3,333 each year), beginning with tax year 2009.
• The homebuyer must certify they will occupy the home as their principal residence for at least two years following the purchase.
• The state Franchise Tax Board is the state agency responsible for administering the tax-credit. Details for consumers on how to submit an application for the credit is available on its website, www.ftb.ca.gov or you can consult a qualified tax professional.
Can someone qualify for both the state and federal tax credits? Yes!
The state homebuyer tax credit (up to $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, only.
• The federal tax credit is also limited to individuals with annual incomes of $75,000 and $150,000 for dual filers. The credit is reduced for individuals with incomes from $75,000 to $95,000 and joint filers with incomes from $150,000 to $170,000.
• 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.
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 (or $150,000 jointly); and must live in the home for at least three years. The state homebuyer tax credit is paid out over three years. The federal credit is a one-time tax benefit.
Tax Credits Benefit Consumers and Help Jump-Start the Economy
Recovery of the national and state economies relies on a recovery of the housing sector. Slumping new home production has been steadily killing jobs for the last two years.
Construction is the backbone of the economy. Every 1,000 homes built creates as many as 3,000 new jobs: truckers; cabinet makers; furniture manufacturers; building suppliers; appliance distributors; utility workers; lenders; accountants; insurers; machinists; retail sales workers; warehouse and storage managers; and many more.
For buyers on the fence, the stars are aligned. Now is a great time to buy a new home.
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