April 1, 2010

Summary of AB 183

AB 183 became law on March 25, 2010.  It was signed by the governor as emergency legislation, thus, going into effect immediately. The law provides $200 million for home buyer tax credits, allocating $100 million for qualified first-time homebuyers of existing homes and $100 million for purchasers of new,or previously unoccupied, homes. To qualify for the tax credit, a homebuyer must purchase a qualified personal residence on or after  May 1, 2010 andon or before Dec. 31, 2010, or purchase one on or after Dec. 31, 2010 and before Aug. 1, 2011 provided that an enforceable contract was executed on or before Dec. 31, 2010.

Here is a partial summary of the law:

1)  AB 183 provides a credit of not to exceed the lesser of $10,000 or 5% (see also Item 2 below) of the purchase price of a "qualified principal residence," defined as a single-family residence purchased by a first-time home buyer or one that has not been previously occupied:

a)  A first-time home buyer is a taxpayer who has had no ownership interest in a principal residence in the preceding three-year period.
b)  A new home is a home which has not been previously occupied.  The credit must be applied by the taxpayer in equal amounts over three successive taxable years.
2)  AB 183 limits the amount of the aggregate credit for first-time homebuyers to $100 million and for new homes to $100 million, for a total of $200 million in allocated credits.  To account for the incomplete utilization of the credit by many taxpayers, the Franchise Tax Board (FTB) is to reduce the allocation amount for new homes by 70% of the value of the credit and reduce the allocation amount for first-time homebuyers by 57% of the value of the credit.
3)  AB 183 provides a credit for purchases of qualified homes on or after May 1, 2010 and on or before Dec. 31, 2010.  It also provides a credit for purchases of qualified homes on or after Dec. 31, 2010 and on or before July 31, 2011, pursuant to an enforceable contract executed prior to
Dec. 31, 2010.
4)  AB 183 allows a taxpayer to reserve a credit prior to the close of escrow for the purchase of a new home if the taxpayer and seller jointly sign and submit to the FTB a certification stating that they entered into an enforceable purchase contract on or after May 1, 2010 and
on or before December 31, 2010.
5)  AB 183 establishes that: 

a) the credit is available for only one qualified principal residence for each taxpayer;

b) the home must be occupied for at least two years immediately following its purchase or the credit amount used will be "recaptured" in subsequent tax years; and,
c) the credit is available on a  first-come, first-served basis.

6)  AB 183 requires taxpayers to submit to the FTB a properly executed settlement statement and a certification from the seller that the home has not been previously occupied or a certification from the taxpayer that he or she is a first-time homebuyer.
7)  AB 183 restricts the credit to taxpayers who did not receive a credit under the previous home purchase credit pursuant to SB 15 X2  (Ashburn), Chapter 11, Statutes of 2009-10, Second Extraordinary Session.  It also excludes persons under the age of 18, individuals claimed
as dependents by another taxpayer and taxpayers who are related to the seller.
8)  AB 183 mandates the FTB to establish a wait list of taxpayers based on the date that a certification or reservation was received once the tax credit for new homes has been exhausted.  The FTB is to notify these taxpayers as to the availability of any remaining credit before December 31, 2011.


9)  AB 183 differs from the federal homebuyer tax credit in that it provides a setoff to state income taxes owed with some limitations.  If the homebuyer owes no taxes, the homebuyer does not receive a check in the amount of the credit.

For more information about the Tax Credit, click here.