California running out of $10,000 tax credits
A boon for new homebuyers, scheduled to last through next March, will be out of money long before that.
NEW YORK (CNNMoney.com) -- Time is running out for California residents wanting to take advantage of a $10,000 tax credit. The state set aside $100 million to help home buyers purchasing newly built homes, hoping to jump start the moribund residential-construction market. But only about 20% of the pot is left.
"We're less than four months into it, and all the tax credits authorized are gone, or practically gone," said Tim Coyle, a senior VP with the California Building Industry Association (CBIA).
The program launched in March and by June 3 nearly $24 million in tax credit certificates had already been issued, according to the state's Franchise Tax Board.
That leaves nearly $76 million in credit available - but there are already numerous claims on that money. In fact, if all the submitted applications are approved, only $17.5 million will be left in the fund. And it has a run rate of about $10 million per week.
"The program is working better than intended," said Coyle. "It's really pushing people off the fence."
The credit is available on a first-come first-served basis and was supposed to last through March 2010. Almost any newly built home qualifies, as long as it's an owner-occupied, principal residence on which property tax is paid. It could be a single-family home, a condo, a coop, a manufactured home or mobile home -- even a houseboat. Only owner-built housing does not qualify. There is no cap on the home price or buyer's income.
The credit reduces taxes dollar-for-dollar up to $3,333 a year for three years, or 5% of the purchase price of a home, whatever is less. Unlike the federal first-time homebuyers tax credit, which is $8,000 or 10% of the home price, whichever is less, the California credit is not refundable. That means the credit will only wipe out taxes up to the full amount paid or owed but no more.
For example, if the buyer's tax bill came to $2,000 for the year, a buyer claiming the full $3,333 would owe nothing but couldn't claim the extra $1,333 back from the state.
First-time, new-home buyers in California can claim both the federal credit and the state if they qualify. That could reduce taxes by $11,333 for the first year of ownership.
Because the money has gone so quickly, the state legislature is considering adding another $200 million to the program. That may be difficult to accomplish right now, however: The state is worse than flat-broke; it's running a $24 billion budget deficit and has the lowest bond rating of any state.
But Coyle argues that the credit is a net win for state coffers and it puts people to work. "Every time you build a home in California, you're generating $16,000 in taxes," he said.
During the boom years, developers were building about 200,000 housing units annually and supported about a half million jobs. Now, only about 50,000 new homes will go up this year and industry employment has shrunk to a fraction of its peak. From 2006 to 2007 alone, industry employment dropped by about 220,000 jobs, according to the CBIA.
Passage of an extension of the program has a good chance, according to Assemblywoman Anna Caballero (D-Salinas), who supports a new bill that already won Assembly approval and has gone to the state Senate.
There has been little opposition, she said, but the program has to be "revenue neutral," which could limit how much is made available as funds would have to be cut from other areas to pay for it.
There is also one big change from the original offering: People buying homes under construction - not just those already finished - will qualify, which should help put projects back on track.
"It creates a reservation system that was absent in the first bill," said Caballero. "Buyers only received a credit when they closed escrow. Now, they would get it with a signed contract."