2010 California Tax-Credit Funds Going Fast!

The money is going quickly! California is just over one month into their new tax-credit programs for new homes and first-time buyers, and it seems that over half of the money allocated for the first-time buyer program may be already spoken for.

As of June 1, 2010, the State of California reports having received nearly 10,000 applications, equaling requests for nearly $51,000,000 of the budgeted $100 million incentive. These figures are only estimates, as they have been compiled based on a small sample of the applications received. The State of California also says that the numbers may be inflated because many applications will be duplicate or invalid. The point is that on paper, this program is intended to accommodate buyers who submit applications until December 31, 2010, but at the rate at which they are pouring in, the money will be gone way before that time.

The credit which can be received by each successful applicant is the lesser of 5% of the purchase price or $10,000 for a qualifying principal residence. But those numbers can be deceiving, as the actual realized benefit will depend on the amount of money that the buyer ends up owing the State of California over three consecutive tax years, beginning with the year in which the home was purchased. As an example, let's say that a buyer received the entire $10,000 credit. That allowance would be evenly split over three years ($3,333 per year). But, let's say that this buyer only owed $1,000 in state tax the first year. Because the credit is non-refundable and does not roll over, she loses the benefit of the other $2,333 which was allotted to her for that tax year.

Because so many individuals will not be able to use their entire allowance, the $100,000,000 program caps will be reduced by a heavy percentage of the amount allotted to each buyer (70% for new-home buyers, 57% for first-time buyers). This means that if a first-time buyer is allotted a $10,000 credit, the total amount available for all first-time buyers is only reduced by $5,700.

Tax credits along with low interest rates on California mortgage loans will hopefully continue to entice buyers back into the market and help our overall economic recovery.

Get more information and updates about these tax-credit programs from the State of California. There are many guidelines and restrictions.