Only one of the credits may be claimed per taxpayer, and there are some general guidelines:
- The home must be a principal residence; rental and investment properties don't qualify.
- The home must be purchased on or after May 1, 2010 and before January 1, 2011.
However, a binding contract entered into by December 31, 2010 may also qualify if the escrow closes by August 1, 2011.
Also, if you enter into a contract before May 1, 2010, you may also qualify if escrow closes on or after May 1, 2010.
- The credit is 5% of the purchase price of the home up to a maximum of $10,000.
- Unlike the federal credit, the California credit is nonrefundable (can't reduce the taxpayers tax liability below zero) and must be claimed in equal amounts over 3 successive tax years. No more than one-third of the credit may be claimed in any one year.
This tax can't be carried back or forward, so if your tax liability for one year is already at zero, you can't 'hold' your credit and apply to a different year.
There is a limit to how much money the California government is willing to spend. There is a cap of $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. So if they run out of funds before you purchase your house, you are out of luck.
Check the state website for updates regarding these limits. Once the funds are completely allocated, home buyers will no longer be issued a Certificate of Allocation. This certificate is required to claim the tax credit on a California income tax return.