California Extends Home Buyer Tax Credit

On March 25^th Gov. Schwarzenegger signed Assembly Bill 183, the Homebuyer Tax Credit legislation, into law.  AB 183 will provide $200 million for home buyer tax credits, allocating $100 million for qualified first-time home buyers of existing homes and $100 million for purchasers of new, or previously unoccupied, homes.  The eligible taxpayer who purchases a qualified personal residence on and after May 1, 2010, and on or before Dec. 31, 2010, or who purchases a qualified principal residence on and after Dec. 31, 2010, and before Aug. 1, 2011, pursuant to an enforceable contract executed on or before Dec. 31, 2010, will be able to take the allowed tax credit.  The credit is equal to the lesser of 5 percent of the purchase price or $10,000, in equal installments over three consecutive years.  Under AB 183, purchasers will be required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).

Nearly 40 percent of first-time home buyers said they would not have purchased a home if the federal tax credit for first-time home buyers was not offered, according to California Association of Realtors.  The state’s previous home buyer tax credit program was so successful that it ran out of tax credits by the end of June 2009, eight months before it was set to expire and just as housing markets appeared to be turning a corner.  Unlike last year’s legislation, AB 183 adds a tax credit for the purchase of an existing home by a first-time home buyer.

Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits  To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive.  Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.

Consult your tax advisor to evaluate your case and verify your eligibility.

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