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Homebuyer Tax Credits Explained

We’ve been getting calls recently from people who bought San Diego real estate in 2009. With all of the advertising of tax credits available to home buyers, many people think that they automatically qualified for the credits. Some people are learning the hard way that they don’t qualify, or that they qualify for less than the full $8,000 credit. Your San Diego real estate professionals are here to help.

Below is a handy summary of Homebuyer Tax Credits as of 3/30/2010.  First-time home buyers and long-time home buyers can both qualify to receive tax credits for homes purchased in 2009, but there are income limitations, restrictions, and other deadlines. The following chart was developed by the California Association of Realtors Legal Department.  It is a helpful resource. But, as always, you should always consult a qualified attorney or tax professional for advice about how the laws apply to your particular situation.
 

  HOMEBUYER TAX CREDIT FEDERAL CALIFORNIA
Amount of Tax Credit 10% of purchase price not to exceed $8,000 for First-Time Homebuyers or $6,500 for Long-Term Residents. 5% of purchase price, not to exceed $10,000 for first-time homebuyers or buyers of properties that have never been occupied. (See also Maximum Credit for All Taxpayers.)
Date of Purchase By June 30, 2010, but taxpayer must enter into a written binding contract by April 30, 2010. From May 1, 2010 to July 31, 2011, but an enforceable contract must be executed by December 31, 2010.
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, housetrailer, or other type of property located in the U.S. Single-family residence, whether detached or attached.
 Eligibility 1. First-Time Homebuyer: Up to $8,000 if buyer (and buyer’s spouse if any) has not owned a principal residence during the three-year period before date of purchase; OR
2. Long-Time Resident: Up to $6,500 if buyer (and buyer’s spouse if any) has owned and used existing home as a principal residence for 5 of the last 8 years.		 1. First-Time Homebuyer: Up to $10,000 if the buyer (or buyer’s spouse if any) has not owned a principal residence during the three-year period before date of purchase;
OR
2. Never-Occupied Property: Up to $10,000 for a principal residence if the property has never been previously occupied as certified by the seller.
Income Restriction Yes. Tax credit begins to phase out for modified adjusted gross income (MAGI) over $125,000 (or $225,000 for joint filers). No tax credit at all for MAGI over $145,000 (or $245,000 for joint filers). No
Maximum Purchase Price $800,000. N/A
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 No repayment required if the buyer owns and occupies the property for at least 36 months after purchase. No repayment required if the buyer owns and occupies the property for at least two years immediately following the purchase.
Multiple Buyers
(not married to each other)		 Tax credit may be allocated between eligible taxpayers in any reasonable manner. Tax credit must be allocated between eligible taxpayers based on their percentage of ownership.
Maximum Credit for All Taxpayers N/A $100 million for first-time homebuyers and $100 million for never-occupied properties, both on a first-come-first-served basis.
Reservations of Credit N/A Yes. Buyer may reserve credit before close of escrow for a property that has never been occupied by submitting a certification signed by buyer and seller stating they have entered into an enforceable contract between May 1, 2010 and December 31, 2010, inclusive.
When to Claim Full tax credit may be claimed on 2009 or 2010 tax returns. 1/3 of total tax credit may be claimed each year for 3 successive years (e.g. $3,333 for 2010, $3,333 for 2011, and $3,333 for 2012).
Tax Agency Internal Revenue Service (IRS). Franchise Tax Board (FTB).
How to File First-Time Homebuyer Credit and Repayment of the Credit (IRS Form 5405) to be filed with tax returns To Be Announced. The FTB may prescribe rules and procedures to carry out this law.
Other Restrictions Cannot be an acquisition from related persons as defined; cannot be an acquisition by gift or inheritance; and buyer cannot be a non resident alien. Cannot be an acquisition from related persons as defined; buyer or spouse must be 18 years old; buyer cannot be another taxpayer’s dependent; credit is allowed for only one qualified principal residence; and credit allowed cannot be 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 November 6, 2009 (as revised). March 25, 2010.
More Information IRS Web site at https://www.irs.gov/newsroom/article/0,,id=
204671,00.html.		 FTB Web site at https://www.ftb.ca.gov/
individuals/ New_Home_Credit.shtmlwhich includes a tally of the $100 million original funding that is still available.
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25 Responses

  2. I have had this come up a lot lately as the credit is set to expired and the conditions of being under contract on April 30th have spurred a lot of activity lately. Great information for San Diego home buyers! 🙂

  4. There are bound to be a ton of people who need this information. I’ll review this post on StumbleUpon and send it to Twitter, Facebook and FriendFeed.

    I see that you are using CommentLuv and KeywordLuv and it looks like you are dofollow too. I have a list of DoFollow CommentLuv KeywordLuv bloggers in the KeywordLuv post that I’ve used in CommentLuv. I’ll add you to it.

    We also have a private blog collaboration that includes numerous power bloggers who are in real estate or home improvement related businesses. If you or your readers would be interested in joining please contact me through my blog.

    1. Thanks Gail. I’m sure that your followers would appreciate it if you spread the word about how the home buyer tax credits work.
      Any yes, CommentLuv is great, and I’m a believer in dofollow blogging. I’ll check out your blog!

  5. This is just what great source of information where Tax Credit is explained well. Home buyers in Sand Diego will benefit a lot from it… I’m sure about that. Congratulations for a job well done.

  9. Now that the Tax Credit has expired, it seems that most people I’ve spoken to have seen a huge slowdown in their respective markets. I’m wondering if you’re seeing the same in the San Diego market, and if you’re able to quantify that number at all?

    I look forward to your thoughts!

    Josh

  10. Looks like CA had extra credits. Hope that helps to get the real estate market moving again in that area. I know that is an expensive place to live and the credit s were very helpful to many.

    1. Thanks for you comment Sally. The California home buyer tax credits picked up right were the Federal tax credits left off. But it was very temporary. The state allocated $100 Million to the fund, to be used for home purchases beginning May 1. The funds are just about depleted, less than eight weeks later. I think that’s the end of tax credits for home buyers for the foreseeable future. But the real estate market has gotten its footing again. The tax credits did their job. Now it’s back to business as usual. But that’s a good thing!

  11. If the market should continue to decrease and the buyers who got that incentive foreclose in less than two years time, they will have to pay that money back. That is one major factor that depends greatly on the market and the ability of the homeowners to stay put.

    Also, I liked how informative and easy to read the list of qualifications for the tax credit are. Since it ended, the amount of buyers looking to purchase has become much more sparse, but at least those who are buying don’t have to compete with multitudes of other buyers.

  12. Thanks for this information. You sure have provided good quality content on tax credits. Many people who have any real estate will find this incredibly useful, thanks again.

  13. Hey Geoff. How unfortunate that buyers didn’t know about all of the requirements and limitations of what they would have qualified for with the tax credit. That’s especially true when you consider the flood of buyers who were out and attempting to take advantage of it while it was available. It really does pay to read up on government programs and incentives before taking action.

  15. We were hit with this in the East Lansing real estate market. I took no pleasure in explaining they would not be receiving little to no return for purchasing a home. Thank you for posting this, it was a great help in finding info on my state.

  16. Excellent post. This really a good and enlightening explanation about home-buyers problems when it comes to Tax credits. I believe this explanation will provide helpful information that would assure home-buyers with their worries.

  18. Federal tax credits for businesses are given to entities to basically reward efforts that give back to the community and work with government missions for a better way of life.

  19. IRS failed to distinguish between home purchases made in 2008 and 2009. That heightened concerns that some claims could be erroneous or even fraudulent,

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