BILL ANALYSIS
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Denise Moreno Ducheny, Chair
Bill No: AB 183
Author: Caballero
As Amended: March 18, 2010
Consultant: Keely Martin Bosler
Fiscal: Yes
Hearing Date: March 22, 2010
Subject: Income tax credit: qualified principle residence.
Summary: This bill authorizes a $10,000 income tax credit
(or 5 percent of the purchase price if that amount is
lower) for taxpayers purchasing qualified homes between May
1, 2010 and December 31, 2010, or any taxpayer who
purchases a qualified home on and after December 31, 2010,
and before August 1, 2011, pursuant to an enforceable
contract executed on or before December 31, 2010.
Qualified homes must be the principle residence of the
taxpayer to be eligible for the tax credit. The bill
allocates $100 million in credits for the taxpayers
purchasing previously unoccupied homes and $100 million in
credits for first-time homebuyers purchasing existing
homes.
Background: In 2009 the Legislature passed and the
Governor signed Chapter 11x2, Statutes of 2009 (SBx2 15,
Ashburn), that authorized a $10,000 tax credit (or 5
percent of the purchase price if that amount is lower) for
taxpayers purchasing qualified homes after March 1, 2009
and before March 1, 2010. The legislation allocated $100
million in credits for previously unoccupied homes that
serve as the taxpayer's principle residence. The Franchise
Tax Board allocated all of the available credits by July 2,
2009, on a first-come, first-served basis.
Proposed Law: This bill would reauthorize the tax credit
authorized by Chapter 11x2, Statutes of 2009, to provide an
additional $100 million in credits for taxpayers purchasing
previously unoccupied homes between May 1, 2010 and
December 31, 2010, or any taxpayer who purchases a
qualified home on and after December 31, 2010, and before
August 1, 2011, pursuant to an enforceable contract
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executed on or before December 31, 2010. The bill would
also authorize an additional $100 million in credits for
first-time homebuyers purchasing existing homes in the same
time frames. First-time homebuyers are defined as
taxpayers who have not had an ownership interest in a home
in the last three years. The taxpayer must occupy the
qualified home as their principle residence to be eligible
for the tax credit under either program.
Taxpayers who received a credit under Chapter 11x2 are not
eligible for this credit. Additionally, the bill precludes
persons under the age of 18 from claiming the credit,
unless the person is married to someone over the age of 18,
and also prevents taxpayers who are related to the seller
and individuals who are claimed as dependents by another
taxpayer from claiming the credit.
The bill requires the taxpayer to submit to the Franchise
Tax Board a properly executed settlement statement. This
bill also requires the submission to the Franchise Tax
Board a certification by the seller that the home has never
been occupied or a certification from the taxpayer that he
or she is a first-time home buyer. The bill allows
taxpayers to reserve a credit prior to the close of escrow.
The buyer and seller must jointly sign and submit to the
Franchise Tax Board a certification that they have entered
into an enforceable contract on and after May 1, 2010, and
before December 31, 2010.
The Franchise Tax Board allocates the credits on a
first-come first-served basis. This bill directs the
Franchise Tax Board to estimate that taxpayers, on average,
will offset tax liability equal to 70 percent of the credit
for previously unoccupied homes. This is based on a
sampling of tax returns from taxpayers awarded the credits
allocated by Chapter 11x2. The bill also directs the
Franchise Tax Board to estimate that taxpayers, on average,
will offset tax liability equal to 57 percent of the value
of the credit for first-time homebuyers purchasing an
existing home. These estimates will allow the Franchise
Tax Board to allocate more than 10,000 credits for each
program to reach the full $200 million in credits allocated
by this bill. The taxpayer must apply the credit in equal
amounts over the next three tax years.
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This bill also requires the Franchise Tax Board to
establish a wait list of taxpayers based on the date that
the certifications and reservations were received once the
tax credits for previously unoccupied homes are exhausted.
The Franchise Tax Board shall notify these taxpayers before
December 31, 2011, whether they have been allocated a
credit.
Fiscal Effect: According to the Franchise Tax Board, this
bill results in revenue losses of $200 million General Fund
to the State. The revenue losses are expected to be
distributed as follows: $6 million in 2009-10, $69 million
in 2010-11, $67 million in 2011-12, $54 million 2012-13,
and $4 million in 2013-14.
Support: California Building Industry Association
(supported similar legislation contained in SB 6x 4
(Ashburn)).
Opposed: None available.
Comments: There are no studies on the specific impacts of
the 2009 tax credit. However, the author of the 2009 tax
credit claims that the credit encouraged reluctant
homebuyers to return to the market and new home sales
started to rise again. The author also claims that the
2009 tax credit encouraged new home construction which
generates jobs and other economic benefits.
Homeownership is clearly a public goal under the existing
tax structure. Homeownership tax subsidies that already
exist include: (1) the mortgage loan interest deductions,
which according to the Department of Finance will result in
more than $5.4 billion in foregone revenue in 2009-10; (2)
the capital gains exclusion, which the Department of
Finance estimates will result in more than $3.7 billion in
foregone revenue in 2009-10; (3) the deductibility of
property tax from federal income; and (4) the approximately
$6.6 billion in other federal tax credits made available as
part of the federal economic stimulus package to encourage
homeownership.
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