The California Franchise Tax Board issued a clarification yesterday about the new tax credit program that will go into effect on May 1st.
Parts of it are as clear as mud, and may even be contradictory but after reading it several times and translating some of their abbreviations, I think I understand it. 🙂
Please talk to your own tax advisor and don’t rely on my interpretation – I’m not a tax advisor and am not licensed to give you that kind of advice!
There are some important differences between this program and the Federal Tax Credit program:
- It is really 2 different programs (FTB = First Time Buyer and NHC = New Home Credit) but you can only participate in one. (No double dipping on this!)
- It is spread over 3 years, and the maximum allocation is $3,333 per year.
- It is NOT a refundable credit and may not be carried over to another year.
- The tax credits cannot reduce regular tax below tentative minimum tax (TMT).
- Applications to reserve for the NHC may be sent in (by fax only) beginning May 1. The form will be available on May 1st. (I bet their fax lines will be overwhelmed!) A copy of the signed contract, dated after May 1st is required.
- For the FTB, there are no reservations allowed.
- A copy of the closing statement (HUD-1) must be sent in with the proper form within 2 weeks of closing. A statement from the seller, certifying that the new home has never been occupied is required for the NHC.
- Any disallowance of the tax credit may not be protested or appealed. 🙁 (If they make a mistake, this certainly doesn’t sound fair!)
Reading “between and around the lines” causes more confusion. While they say that you can’t reserve your new home tax credit if you entered a contract before May 1st, they also define sale date as “close of escrow.”
I think there is potential for double dipping to get one of the California tax credits in addition to the Federal tax credit as long as you close between May 1 and June 30th. For the Federal, you need to be under contract by April 30th. My guess is that we will see a lot of first time buyers in California that are were scheduled to close in the last half of April, suddenly come up with problems that will delay their closings to May!
If you read that document and come up with more insight, please leave me a comment here, or send me an email!