Homebuyer Tax Credits Demystified (with full credit to CAR)

Sure, I am a little late to the party, but better late than never.

Compliments of the California Association of Realtors (little R), I am able to offer a very nifty summary of the two tax credits which may be available to home buyers. The federal law allows a credit of up to $8,000 for first-time home buyers, while the state law allows up to $10,000 for buyers of new homes in California as long as the pot of allocated money holds out.

NOTE: The California Association of Realtors (little R) has said that I can reprint this material for non-commercial uses only. Since no money is changing hands, I think I am safe. If, on the other hand, I suddenly disappear, you will know what happened. In that case, gifts of chocolate and the latest People magazine would be appreciated while I’m doing hard time.

HOMEBUYER TAX CREDIT FEDERAL CALIFORNIA
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. Yes. Property purchased must be a qualified principal residence and eligible for the homeowner’s exemption from property taxes.
Type of Property House, condominium, townhome, manufactured home, apartment cooperative, houseboat, house trailer 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 mobile home.
First-time Homebuyer Yes. The buyer (and the 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, 2009, 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 occupied the property for at least two years immediately following the purchase.
Multiple Buyers (not married to each other) The $8,000 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.
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.
Tax Agency Internal Revenue Service Franchise Tax Board
How to File IRS Form 5405 FTB Form 3528-A
When to File Form 5405 must be filed with 2008 or 2009 tax returns. FTB Form 3526-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 and buyers who are nonresident aliens. Credit allowed is not a business credit.

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