By: Eve Mitchell
May 5, 2010
The popular state homebuyer tax credit returned Saturday after running out of money last year in just four months. But if you're interested in obtaining the tax break to help reduce the cost of buying a home, you better act fast.
Association economists are projecting that funding set aside for the tax credit will be used up quickly, thanks to an expected flood of delayed closings by homeowners who hope to qualify for both the state and federal credits.
"(The state credit) is expected to run out of money in two to three weeks "... based on the number of closings in the pipeline. It's going to be done and over with very quickly," Tessaro said.
The federal homebuying credits, which provide up to $8,000 for first-time buyers and up to $6,500 for qualified repeat buyers, have a June 30 deadline for closing escrow in cases in which buyers signed a binding purchase contract by April 30.
The state credit, worth up to $10,000 over a three-year period, became effective May 1 and can be used by two groups of taxpayers: First-time and repeat buyers of new homes and first-time buyers of existing homes.
To claim the credit, first-time buyers of existing homes have until Dec. 31 to close escrow, or until program funding runs out.
Buyers of new homes with a purchase contract signed from May 1 to Dec. 31 can reserve a credit, but then must have escrow closed by Aug. 1, 2011, to obtain the credit.
The overlap window in May and June to take advantage of both the state and federal tax credit prompted many buyers to delay closing escrow until May so they also could apply for the state credit, Tessaro said.
Three clients decided to delay closing escrow on homes until this week so they could get both credits, said Faramarz Moeen-Ziai, a mortgage banker with the San Ramon-based Bank of Commerce Mortgage.
"We definitely had that happen last week," he said. "The state tax credit is only available for closing after May 1."
The state credit was made possible by legislation signed in March by Gov. Arnold Schwarzenegger. It provides $100 million in funding for all buyers of new homes and $100 million in funding for first-time buyers.
The state tax credit program is being handled by the state Franchise Tax Board.
The $100 million in funding for first-time buyers is expected to be used up quickly, Franchise Tax Board spokeswoman Brenda Voet wrote in an e-mail.
"We will provide estimates, based on sampling, of the number of first-time-buyer applications and the related credit amounts that we have received beginning May 6, 2010. We are currently working on these estimates," she wrote.
"The original revenue estimate for the First-Time Buyer Credit is that it would only last six to eight weeks" but that the funding could be used up more quickly than that.
The state credit has its limitations, Moeen-Ziai said.
That's because the maximum $10,000 credit is spread out over three years, or $3,333 a year.
To obtain a $3,333 credit, a taxpayer would have to owe at least $3,333 in state taxes.
A taxpayer who paid only $1,500 in taxes would receive only a $1,500 credit that year.
"The bottom line is that most people don't have $3,333 in state taxes," he said.
Contact Eve Mitchell at 925-952-2690.HIGHLIGHTS
Tax credits are limited to either 5 percent of the purchase price or $10,000, whichever is less.
The home can be a single-family house, condominium, townhouse, houseboat, manufactured home, or mobile home.
The home must be a primary residence and not an investment property.
Taxpayers must receive a Certificate of Allocation from the state Franchise Tax Board to claim the credit.
If the available tax credit exceeds the amount of taxes owed, the unused tax credit may not be carried over to the following year.
For details, go to www.ftb.ca.gov or call 888-792-4900 (press 1).