The new tax credit was signed by Governor Arnold Schwarzenegger February 20th and was one of several bills designed to remedy the $40+ billion dollar state budget discrepancy. Legislators hope not only to encourage home buyers, but also builders, which could lead to creation of new jobs and a drop in the state unemployment rate. The bill is the first state legislation of its kind, according to the National Conference of State Legislatures, since 1997 when the District of Columbia enacted a tax break up to five thousand dollars for qualifying home buyers. It’s also the only tax break enacted during the current recession. The NCSL also says Montana has a home-buyer savings account plan that features a tax credit.
There are limits on the tax credit. The budget only allows for 100 million dollars on a first come, first serve basis and is only available for one year. In addition homebuyers using the credit must reside in the home for 2 years or repay the entire amount of the tax break. Also, unlike the federal tax credit which can be applied to your 2008 return, the California credit will be broken up into 3 yearly tax breaks starting in 2009 or 2010, depending on when you buy the home. While the federal credit is limited to individuals making under 75 thousand dollars or couples making under 150 thousand, California’s homebuyer credit is available to anyone.
When approached for comment about the new tax credit, a spokeswoman for the governor said that he battled for the bill in hopes of stimulating the state’s sagging real estate market and providing a boost in California’s economy. The idea behind the credit is to convince buyers on the fence that now is the right time to buy. Daniel Morris, a CPA and the managing partner for Morris & D’Angelo out of San Jose , says residents of California can claim both the state and federal credits if they qualify. He is also among a group of insiders who say the measure is detrimental to current homeowners trying to sell. They say that while the credit could spur new home building and create jobs, it could also lead to a rise in foreclosures as home buyers turn their attention to new homes to avail themselves of the tax break.
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