Taken from the CBIA Monday Morning Special Edition Report we found out the details on the State New-Home Buyer Tax Credit. Offering great benefits to first time buyers on newly constructed homes offers new potential for needed cash flow and this FAQ guide will show you how.
FAQ’s About the State New-Home Buyer Tax Credit
How much is the state tax credit?
The state tax credit is for $10,000 or 5 percent of the purchase price of a newly built home, whichever is less. The home must be the principal residence of the buyer, and the sale must close between March 1, 2009 and March 1, 2010.
How does the tax credit work?
The credit will be provided in equal amounts (up to $3,333) per year, over three successive tax years, beginning with the year the purchase is made.
Will I receive the credit if I buy an existing home?
The credit is only for the purchase of a newly built home that has never been occupied. That is because building a new home generates more tax revenues than the creidt will cost the state.
Are there any other restrictions?
The taxpayer must live in the home as their principal residence for at least two years. If he/she does not, he/she will have to repay the credit.
How much money is available under the program?
The law limits the total amount of credits that can be claimed to $100 million. Credit reservations will be allowed on a first-come, first-served basis. It is likely that the full amount will be exhausted this year, so prospective buyers should move quickly.
Can the credit be used in conjunction with the recently enacted federal tax credit?
Yes. If you buy a new home between March 1 and Dec. 1 and are a first-time homebuyer, you can take advantage of both the $10,000 state credit and the $8,000 federal tax credit.
Why is the credit needed?
Confidence in the housing market needs to be restored. Consumers, fearing declining home values, have been afraid to buy, which keeps prices spiraling downward. But a similar federal tax credit, enacted during similar circumstances in 1975, caused buyers to jump back into the market, leading to a doubling of home sales and quickly stabilizing the market.
How can the state afford a tax credit while trying to close a massive budget deficit?
A study coauthored by a forner state finance director shows that, on average, every home built in California generates $16,000 in state revenues and another $3,000 in revenues to local governments. That means that even after providing the tax credit, the state will receive a net $6,000 in additional revenues. Furthermore, the $16,000 will be generated when the home is buily, and the credit will be spread over three years.
Why should we build new homes when there are so many foreclosed homes on the market?
There are two reasons. First of all, building homes generates tax revenues and puts people back to work. The state has lost more than 300,000 homebuilding-related jobs during the past 2 1/2 years, which has been a major factor in causing the current economic recession and rapidly rising unemployment rates. Second, the unsold inventory of existing homes has fallen sharply during the past year and in December stood at less than six-month’s supply, down from almost 17 months’ supply at the beginning of 2008. Economists say when supply drops to the current level it’s time to start building again.