Tax and financial advice from the Silicon Valley expert.

California stops accepting applications for first-time homebuyer credits but new homes credit still available

The California Franchise Tax Board has announced it stopped accepting applications for the First Time Home Buyer Credit as of midnight, August 15, 2010. The credit can only be granted for up to $100 million, so some of the applications received before August 16 could still be denied.

The Franchise Tax Board is still accepting for the New Home Credit.

California adopted tax credits for new home purchases and first-time homebuyers during 2010. The credits are available for qualified taxpayers who purchase a qualified residence on or after May 1, 2010 and before January 1, 2011. The credits are also available for taxpayers who purchase a qualified principal residence on or after December 31, 2010 and before August 1, 2011, with an enforceable contract executed on or before December 31, 2010.

Since there is a maximum amount of credits that can be awarded, the expiration dates might not mean anything, so taxpayers who want the credits should apply for them as early as possible. The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. It is expected that taxpayers won’t be able to use all of the credits they are awarded, so the New Home Credits will be reduced by 70% of the tax credit allocated and the First Time Buyer Credits will be reduced by 57% of the tax credit allocated when determining when the limits have been reached.

The tax credits are the lesser of 5% of the purchase price or $10,000 for a qualified principal residence. The credits will be applied in equal amounts over 3 successive tax years, or a maximum of $3,333 per year, beginning with the tax year during which the residence was purchased. The credits can’t reduce regular tax below the tentative minimum tax. The alternative minimum tax limitation will prevent many taxpayers from using the entire credit. The credits are non-refundable and can’t be carried over. (Use it or lose it!)

If a taxpayer qualifies for both credits, only the New Home Credit will be allowed.

Applications for the credits using Form 3549-A and the final settlement stub (buyer’s HUD-1 statement) must be submitted by fax to the Franchise Tax Board (FTB) at 916-855-5577 within 14 calendar days after the close of escrow. (Be sure to use the 2010 form.) There is also a reservation form, Form 3549-RR, that may be submitted before closing for the New Home Credit. The reservation form is used to “hold your place in line”. When a reservation form is submitted, Form 3549-A and the escrow statement still must be faxed within 14 days after the close of escrow. The Franchise Tax Board says to keep the forms and the fax confirmation report. You can get the forms at

The Franchise Tax Board has asked that taxpayers only fax the forms one time.

The FTB will use the time and date stamp on the fax to determine the order applications are received.

The purchase date is defined as the date escrow closes.

Taxpayers may not request a New Home Credit reservation if they entered into the contract before May 1, 2010, but can still apply for the credit when the purchase closes on or after May 1.

The Franchise Tax Board says it will take 3-6 months to notify taxpayers after an application or reservation is received. The First-Time Buyer Credit is expected to be used up very quickly. The FTB is reporting estimates of how many of those credits have been allocated ($25,473,000 as of May 18, 2010.) New Home Credit usage won’t be posted until mid-July.

Taxpayers won’t qualify for either credit if:
*The taxpayer was allowed a 2009 New Home Credit
*The taxpayer is under 18 years old. (A spouse/registered domestic partner (RDP) can qualify a couple as at least age 18.)
*The taxpayer or the taxpayer’s spouse/RDP is related to the seller.
*The taxpayer qualifies as another taxpayer’s dependent for the year of purchase.

A qualified principal residence for the New Home Credit must meet the following requirements:
*The home must be a single family residence, including a condominium, a cooperative project unit, a house boat, a manufactured home, or a mobile home. A HOME CONSTRUCTED BY THE TAXPAYER WON’T QUALIFY BECAUSE THE HOME MUST BE “PURCHASED”.
*The home must never have been occupied. (Certification required by the seller.)
*The home must be eligible for the California property tax homeowner’s exemption.
*The home must be occupied by the taxpayer as his or her principal residence for a minimum of 2 years immediately following the purchase.

To qualify as a principal residence for the First-Time Buyer’s Credit, the home must meet the same requirements as for the New Home Credit, except the home may have been previously occupied and no certification of never being occupied is required.

A first-time buyer is any individual (and that individual’s spouse/RDP, if married on the date of purchase) who did not have an ownership interest in a principal residence, either in or out of California, during the 3-year period ending on the date of the purchase of the qualifying principal residence. Ownership during that 3-year period of a principal residence by a taxpayer’s spouse or RDP disqualifies the taxpayer, even if the spouse or RDP has no ownership interest in the home for which a credit is sought.

According to the FTB, any disallowance of the credit may not be protested or appealed.

It looks like you should view receiving an allocation of the credit as a lucky gift. The Franchise Tax Board appears to be bracing itself to be overwhelmed with applications.

Here is a link to the Franchise Tax Board’s web posting about these credits.

IRS Circular 230 Disclosure:
As required by U.S. Treasury Regulations, you are hereby advised
that any written tax advice contained in this communication was
not written or intended to be used (and cannot be used) by any
taxpayer for the purpose of avoiding penalties that may be imposed
under the U.S. Internal Revenue Code.

Tax and financial advice from the Silicon Valley expert.