Real Estate Information Archive

The federally funded Home Buyer Tax Credit incentive offered a credit of $8,000 to first-time home buyers, along with a “long-time resident” credit of up to $6,500 to repeat buyers. The deadline for the at large credit was April 30^th to have a binding contract and June 30, 2010 to close on the home (the closing date deadline has now been extended to September 30^th, 2010.)

The National Association of Realtors reported a significant drop in May of existing home sales and the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions showed a large drop in all home buyer traffic in May. Significantly, most of the drop was attributable to first-time homebuyers, who had been playing a major role in home sales since late last fall. The loss of traffic will result in June and July sales and fall closings.

“The decline of first-time homebuyer traffic is undoubtedly related to the expiration of the federal homebuyer tax credit,” noted Thomas Popik, research director for Campbell Surveys. “Homebuyers had until April 30 to sign a purchase and sale agreement and receive the credit. Once we entered the month of May, the government stimulus disappeared.”

At least one market has responded to loss of the government stimulus. California enacted a new $10,000 first-time homebuyer tax credit just in time to miss the drop cause by the end of the federal Home Buyers credit.

California has one of the highest foreclosure rates in the nation. The bill to enact the tax credit, signed by Gov. Arnold Schwarzenegger in March, provides $200 million for homes purchased between May 1 and Dec. 31 and between Dec. 31 and Aug. 1, 2011.

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Beginning May 1, new California legislation takes effect that will provide a tax credit up to $10,000 to residents who buy their first home or a newly constructed home.

This legislation allocates $200 million to fund tax credits for qualified home purchases; $100 million is for buyers of new, unoccupied homes and the other $100 million is for first time buyers of existing homes.

The tax credits will be available to home buyers on a first-come, first-served basis. This is an incentive for your buyers to act now (as a reminder, the $100 million allocated for last year’s new home buyer program was depleted in just four months).

A notable feature of this year's legislation is that buyers of newly constructed homes may choose to reserve a tax credit prior to the close of escrow. This will become important as California nears the $100 million cap for homes that may not close escrow before the cap is reached. Buyers that are applying for the First-Time Buyer Credit (purchasing existing homes) will not be able to reserve the tax credit before escrow closes. Details about how to reserve the tax credit can be found here.

Below are some highlights of the new tax credit program:

• Buyers of existing homes must close escrow between May 1, 2010 and December 31, 2010.
• Buyers of new homes can reserve their credit by entering into an enforceable contract between May 1, 2010 and December 31, 2010. They must file the proper paperwork with the tax board and close escrow by August 1, 2011.
• First-time home buyers are eligible whether they buy a newly built or an existing home.
• Current homeowners looking to trade up must buy a newly built home in order to receive the tax credit.
• If a taxpayer qualifies for both tax credits, the law specifies that that the New Home Credit be applied (only one tax credit is allowed per taxpayer).
• The tax credit is worth up to 5% of the purchase price of the home, or $10K, whichever is less.
• The credit will be allocated evenly over three years. If a buyer qualifies for the full $10,000 tax credit, they’ll get up to $3,333 per year. They will need to consult with their CPA for details and eligibility as related to their specific situation.
• The buyer cannot be a dependent and the home purchased can't belong to a relative.
• The buyer is required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).

And, although it’s a small window, there are some buyers that may be able to combine this new California tax credit with the $8,000 Federal Home Buyer Tax Credit for a total of $18,000 in tax credits. To do so, the purchase contract must be signed by April 30, 2010 (for Federal eligibility) and the purchase must close between May 1, 2010 (when the California program begins) and June 30, 2010 (when the Federal program ends). For the purposes of the California tax credit, the purchase date is defined as the date escrow closes.

As always, please call me to discuss specific situations or to schedule time to review your clients' mortgage or financial strategies.

Andy Block - Mortgage Advisor & Financial Advisor
Opes Advisors
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Direct: 650.931.0605
Fax: 650.931.0601

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Fax 650.931.0601

Opes Advisors is licensed as a registered investment advisor with the Securities and Exchange Commission (SEC) and is licensed as a Residential Mortgage Lender by the CA Dept of Real Estate.

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