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How to Use the Tax Credits

Low interest rates, low prices, and two new tax credit programs are doing their part to take some of the financial stress out of buying a home. It’s unclear if interest rates will remain historically low much longer, but one thing is clear: time is running out on your ability to use an $8,000 federal tax credit and a $10,000 California credit.

Federal Tax Credit for First-time Home Buyers
The American Recovery and Reinvest- ment Act of 2009 provides an $8,000 federal tax credit for first-time home buyers (those who haven’t owned a home within the last three years) who purchase a principal residence between January 1, 2009, and December 1, 2009.

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000, with any unused credit refunded to the purchaser. The credit doesn’t require repayment and is reduced for buyers with a modified adjusted gross income over $75,000 for single taxpayers and $150,000 for married taxpayers. Claim your credit by completing IRS Form 5405, and then inserting the amount on Line 69 of your 1040.

California Tax Credit for New Homes
California also is offering a tax credit of $10,000 for all buyers who purchase newly constructed homes between March 1, 2009, and March 1, 2010. The credit is not a loan, as long as the home remains your primary residence for two years. Unlike the federal credit, the state’s option is non-refundable for those buyers who don’t use all $10,000.

The state credit is good for 5 percent of the home’s sales price or $10,000, whichever is less. Home buyers receive the tax credit over a three-year period and in equal amounts every year. Unlike the federal credit, there are no income limitations for the state program.

Home buyers can tap both programs to yield an $18,000 tax credit, but time is running out to cash in on the opportunity. Limited to the first 10,000 new home purchases, the $100 million set aside for California’s program is depleting faster than expected. Home buyers who don’t act now could end up out of luck when it comes time to cash in on this innovative opportunity.

Ask your REALTOR® for assistance. An application for new home credit must be completed by the buyer and seller within one week after the close of escrow and faxed by the escrow person to the Franchise Tax Board at (916) 845-9754.

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