For California homebuyers, tax time is now tax relief time too. Thanks to two recent laws, a California homebuyer may qualify for $18,000 in tax credits for buying his or her piece of the American dream. The two tax credits are a first-time homebuyer credit up to $8,000 under federal law, and a new home credit up to $10,000 under California law.
Here’s a quick summary of the two tax credit laws:
| HOMEBUYER TAX CREDIT | FEDERAL ($8,000) | CALIFORNIA ($10,000) |
|---|---|---|
| Amount of Tax Credit | 10% of purchase price not to exceed $8,000. | 5% of purchase price, not to exceed $10,000. Maximum tax credit for all taxpayers is $100 million to be allocated on a first-come, first‑served basis. |
| Principal Residence | Yes. Property purchased must be the taxpayer’s principal residence which is generally the home the taxpayer lives in most of the time (26 U.S.C. § 121). | Yes. Property purchased must be a qualified principal residence and eligible for the homeowner’s exemption from property taxes (Cal. Tax & Rev. Code § 218). |
| Type of Property | House, condominium, townhome, manufactured home, apartment cooperative, houseboat, houstrailer, or other type of property located in the U.S. | Single-family residence, whether detached or attached, condominium, cooperative project unit, houseboat, manufactured home, or mobilehome. |
| First-time Homebuyer | Yes. The buyer (and buyer’s spouse if any) must not have owned a principal residence during the three-year period before date of purchase. | No. The buyer need not be a first-time homebuyer. |
| Unoccupied Property | No. Property may have been previously occupied or not. | Yes. Property must have never been previously occupied as certified by the seller. |
| Minimum Occupancy Requirement | Must be the buyer’s principal residence for 36 months after purchase, otherwise credit must be repaid. | Must be the buyer’s principal residence for 2 years after purchase, otherwise credit must be repaid. |
| Income Restriction | Yes. Tax credit begins to phase out if modified adjusted gross income is over $75,000 (or $150,000 for joint filers). No tax credit at all if modified adjusted gross income is over $95,000 (or $170,000 for joint filers). | No. |
| Date of Purchase | January 1, 2009 to November 30, 2009, inclusive. (Note: A repayable $7,500 tax credit is available for purchases from April 9, 2008 to December 31, 2008.) |
March 1, 2009 to February 28, 2010, unless $100 million funding runs out. |
| Refundable | Yes. Any amount of the tax credit not used to reduce the tax owed may be added to the taxpayer’s tax refund check. | No. |
| Repayment | The buyer need not repay the tax credit if the buyer owns and occupies the property for at least 36 months after the purchase. | The buyer need not repay the tax credit if the buyer owns and occupies the property for at least two years immediately following the purchase. |
| Multiple Buyers (not married to each other) |
The $8,000 tax credit may be allocated between eligible taxpayers in any reasonable manner. | The $10,000 tax credit may be allocated between eligible taxpayers based on their percentage of ownership. |
| Maximum Credit for All Taxpayers | N/A | $100 million. |
| When to Claim | Full tax credit may be claimed on 2008 or 2009 tax returns. | 1/3 of total tax credit may be claimed each year for 3 successive years (e.g. $3,333 for 2009, $3,333 for 2010, and $3,333 for 2011). |
| Tax Agency | Internal Revenue Service (IRS). | Franchise Tax Board (FTB). |
| How to File | First-Time Homebuyer Credit (IRS Form 5405) to be filed with 2008 or 2009 tax returns |
Specific procedure for claiming credit includes completing an Application for New Home Credit (FTB Form 3528-A). |
| When to File Form | Form 5405 must be filed with 2008 or 2009 tax returns. | FTB Form 3528-A must be faxed by escrow to the FTB within one week after close of escrow and filed with the buyer’s 2009 or 2010 tax returns. |
| Exceptions | Acquisitions by gift or inheritance, acquisitions from related persons as defined, and buyers who are nonresident aliens. | Credit allowed is not a business credit under Cal. Tax & Rev. Code § 17039.2. |
| Legal Authority | 26 U.S.C. section 36. | Cal. Rev. & Tax Code section 17059 (as amended by Senate Bill 15). |
| Date of Enactment | February 17, 2009. | February 20, 2009. |
Readers who require specific advice should consult an attorney. This information was provided by The C.A.R. Legal Department.
