Will California Extend The New Home Tax Credit?

The State of California may be laying off school teachers, furloughing state employees and attempting to come up with some creative accounting to address the budget deficit, but one thing appears to be sacrosanct. Real estate, or more specifically home buyers who are purchasing new construction may receive “most favored” status as the program that was limited in rebate funds seeks an extension. The program originally budgeted at $100 million appears to be out of money. The proposal is to extend it until March 2010.

Checking the California Franchise Tax Board website the $100 million now appears to be allocated. They will continue to accept additional applications to account for duplicates and invalid applications, but once they receive their number of 12,000 applications, the number will be disconnected. They currently have approximately 11,000 applications.

Is the Incentive Producing Incremental Sales?

I think the question on everyone’s mind would be “What is the State getting for its $10,000?” With signs beginning to point to a turnaround in the real estate market, is it necessary to extend the tax credit? The credit only applies to homes/condominiums that have not previously been lived in. In Pasadena, that limits the program to primarily some of the new condo projects in town. With interest rates at very competitive rates, is there a need for additional incentives? New home builders have also been more creative in selling their inventory as buyers have found themselves with increased negotiating power.

Why the Tax Credits?

I would surmise the intent of the tax credits is twofold (1) to move some of the existing housing inventory and (2) to increase the tax base and ultimately the contributions to the general fund. Why incentify someone who is buying a previously owned home, where the taxes are already being paid and quite possibly the change of ownership will reduce the property taxes since the new value is less than what the current owner paid.

My guess is this may be a hard bill to pass. It’s going to be tough to justify based on the current political climate and economic conditions.