California ups home buyer tax credit

California ups home buyer tax credit

News from the Cyberhomes blog that could impact you if buying a home or assisting your client in a purchase.

California’s real estate market may again become golden for some home buyers now that Gov. Arnold Schwarzenegger has proposed up to a $10,000 tax credit for those who purchase new or existing homes in the state.

Program specifics have not been available, so it is uncertain whether Californians would be qualify for both the state and federal credit, which offers up to $8,000 to first-time buyers and $6,500 to existing homeowners.

The state program will allow buyers to get one-third of the credit back on their taxes each of the three years after purchasing a home. The federal program returns the full credit amount in the first year.

Credit’s supporters

Schwarzenegger’s proposal must be approved by the state legislature, although that seems likely considering its quick passage of a previous home buyer tax credit in 2009. That program only covered the purchase of new, unoccupied homes, and started in March with a $100 million limit. So many homeowners took advantage that the program ran out of money by June, eight months before it was scheduled to end.

This time, Schwarzenegger is asking for $200 million, which is expected to draw more than 20,000 home buyers. Similar to the previous program, there will be no income limits to qualify, although buyers must occupy the house as their primary residence.

Obviously, the real estate industry was ecstatic with the development, considering how quickly consumers jumped on the last tax credit. Home builders were a bit more tepid in their response, realizing this time they will not have the program devoted to their market.

Allison Barnett, a lobbyist for the California Building Industry Association, told the Sacramento Bee that using tax credits for new home construction creates more jobs. Of course, she failed to mention that it also increases inventory, which is not what the state market needs.

Criticism of credit

Adding a program that will cost $200 million did not escape criticism, especially in a state with a $20 billion deficit for 2010. Proponents, however, countered that for every new house built, the state receives $16,000 in tax revenue.

That argument would make more sense if the program was limited to new homes as was the previous tax credit. The state appears to be banking on the tax credit to quickly take a big chunk out of existing inventory.

Foreclosures, however, could keep the inventory from falling much. It’s no secret that many lenders are keeping foreclosures off the market and even delaying taking homes back from borrowers to keep the properties off their books and prices higher.

This tactic will likely adjust so that lenders can take advantage of the tax credit by putting their distressed properties on the market.

Regardless of whether they are buying a new, existing or distressed property, home buyers are going to benefit from the program.

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