Some home buyers get new state tax credit

Cash-starved California just came up with $200 million more to throw at the housing market.

On Thursday, Gov. Arnold Schwarzenegger enthusiastically signed a bill that will award an estimated $200 million in state income tax credits to people who buy a home starting May 1. The credit is worth up to $10,000, spread evenly over three years. The credit is available to anyone who buys a newly built home or to first-time home buyers who buy a newly built or existing home.

Knowing that many buyers won't save the full $10,000, the state is awarding more than $200 million in credits, hoping that the actual cost to the general fund will come in right around $200 million. The actual cost won't be known for more than three years.

The new bill will cost the state more than twice as much as last year's home buyer credit.

Early last year, the Legislature approved $100 million in state tax credits for people who bought a newly built home starting March 1, 2009.

Last year's credit was also worth up to $10,000 spread over three years but applied only to new homes, not existing ones. The credits, which were allocated on a first come, first served basis, ran out in less than four months, and the Franchise Tax Board stopped awarding them July 2.

The tax board estimated that last year's credit will cost about $70 million in lost tax revenues, $30 million less than the sum allocated, because many buyers won't use their entire credit.

To save $10,000, a homeowner must owe at least $3,333 in state income tax in each of the three years. A homeowner who owed only $2,000 in one year would lose $1,333 in tax savings that year. The unused credit cannot be used to reduce taxes owed in past or future years.

The new credit
The bill the governor signed last week, AB183, provides $100 million in credits for the purchase of existing homes and $100 million in credits for the purchase of new homes.

To make sure that credits are not left on the table, the bill lets the Franchise Tax Board award credits to at least 17,544 buyers of existing homes and at least 14,286 new-home buyers. If each of those buyers saved the full $10,000, the state would lose more than $300 million in tax revenues. Because they won't, the tax board estimates that the actual cost should be roughly $200 million - but it could be more or less.

Read the rest of the article here

By Kathleen Pender