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California Tax Credit Expected to Spur New Home Construction
In a move that will provide families in California with a significant incentive to return to the housing market, the state assembly last week passed SB 15XX by Sen. Roy Ashburn (R-Bakersfield), which established a tax credit of the lessor of $10,000 or 5% of the purchase price of a newly built single-family (attached or detached) home sold on or after March 1 of this year and before March 1, 2010, up to $100 million in total state income tax credits.
In addition, first-time home buyers in California will be able to take advantage of both the $10,000 credit and the $8,000 tax credit provided in the federal stimulus package enacted earlier this month, for a combined $18,000 in reduced federal and state income tax.
The $8,000 federal tax credit is only available to first-time buyers, and to qualify they must close on a home, new or existing, between the start of this year and before Dec. 1.
Builders in California said that the $10,000 tax credit for purchasers of new homes will help rally their depressed industry, creating jobs and much-needed tax revenue for state and local governments.
“The tax credit will help push prospective buyers off the fence and will help jump-start the home building industry, which last year built the fewest homes and apartments since we began keeping records in the early 1950s,” said Robert Rivinius, president and CEO of the California Building Industry Association. “That will put people back to work, begin rebuilding the state’s economy and provide much-needed revenues to the state and to local governments."
Among the provisions of the state credit:
- The credit will be provided in equal amounts, up to $3,333 per year, over three successive tax years, beginning with the year in which the purchase is made.
- The credit is only for the purchase of a newly built single-family (attached or detached) home that has never been occupied.
- Taxpayers must repay the credit if they do not live in the home as their principal residence for at least two years.
A total of $100 million — the equivalent of 10,000 home purchases for $10,000 credits — has been allocated for the credit. Builders in the state are expecting the full amount to be exhausted this year and are advising prospective buyers to act quickly. Credit reservations will be allowed on a first-come, first-served basis.
A study coauthored by a former state finance director shows that, on average, a home built in California generates $16,000 in state revenues and another $3,000 in revenues to local governments. Under that assumption, the state stands to receive a net $6,000 in additional revenues for each $10,000 credit that is provided.
California has lost more than 300,000 home building-related jobs during the past two and a half years, which has been a major factor behind the current economic recession and the state’s rapidly rising unemployment rate.
“Economists agree that housing leads the nation out of recessions, and with this stimulus we believe the depressed California home building industry will begin to recover and help the state’s economy to rebound,” Rivinius said.
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