California Gov. Signs New Tax Credit for Homeownership

March 30, 2010 by Shirleen Von Hoffmann Leave a reply »

Gov. Arnold Schwarzenegger has signed a new bill providing up to $10,000 in tax credits for both new-home buyers and for first-time buyers of existing homes.

An earlier round of state tax credits offered last year were for new-home purchases only. That program was so popular that homebuyers depleted the full $100 million eight months before the deadline.

Under the latest plan, the state doubled the amount of credits to $200 million.

Standing before a Fresno housing project, Schwarzenegger said the tax credits will help meet his administration’s goal of creating “jobs, jobs, jobs.” He added:

“We are the eighth largest economy in the world. It would be absolutely insane for us to sit back and wait for the economy to come back.”

The state tax credit will become effective May 1, shortly after a federal tax credit expires.

Some readers criticized the proposal when Schwarzenegger unveiled it in January for artificially propping up home prices, already unaffordable for many families. But building industry officials maintain the tax credit is needed to boost home construction and the state economy.

John Young, chairman of the California Building Industry Association, said during the news conference that the tax credit “will get buyers off the fence, and into our models and buying homes, and that will put people back to work.”

Orange County BIA CEO Kristine Thalman issued a statement saying:

“The reality is new construction creates jobs – up to three new jobs for every single home built. Renewing the homebuyer tax credit is a critical step in creating jobs and generating positive economic activity for the state.”

Assemblywoman Anna Caballero, D-Salinas, the bill’s co-author, also spoke at the governor’s news conference, saying that an added benefit will be to get families living in vacant homes that create blight in neighborhoods. She added:

“We recognized that it was really important to get the current inventory of homes sold so we can get them back on the tax rolls and get families in them.”

The final version of the bill differs from the provisions initially outlined in January by the governor’s staff. The governor’s staff believed at first that Schwarzenegger initially wanted to limit the credits to first-time buyers only.

Under the provisions, the bill:

  • Provides a 5% tax credit, up to a $10,000 limit, to all buyers of new, never-occupied homes.
  • Provides a 5% tax credit, up to a $10,000 limit, to first-time buyers of existing homes.
  • Sets aside $100 million for each program, for a total of $200 million.
  • Requires buyers to close escrow between May 1 and Dec. 31 to qualify. New-home buyers have until Dec. 31 to sign a purchase contract, then must close escrow by Aug. 16, 2011.
  • Requires buyers to live in the home for at least two years.
  • Provides for the tax credit to be paid in thirds over a three-year period.
  • Sets no income limitations on buyers.
  • Requires buyers to repay the tax if they fail to live in the home for two years or fail to close escrow on a new home by Aug. 16, 2011.
The new homebuyer’s tax credit is:

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