Buy a new home, get a tax break

March 1, 2009 5:33:23 PM PST
A new tax break is now in effect for homebuyers who close escrow on a new house in California. The credit is designed to give a boost to the housing industry, and it should also help would-be homeowners, including some potential buyers in the Bay Area.

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Cynthia Thoma and her family are in the market for a new home, and this might be her lucky day.

"We don't have to fix anything... hopefully not," said Thoma.

Buyers who close escrow on new homes beginning today are eligible for a new state tax credit of $10,000 or five percent of the purchase price -- whichever is less.

Thoma just started her house hunt, but it sounds like a deal.

"Hopefully when it is a better time for us to actually sell our home where we could get money out of it, there will be another plan or something available if if we don't take advantage of it this time," she said.

Real estate agent Corrina McCullough is ready to make a deal. The brand new Martinez homes she has been trying to sell just got a little cheaper.

"It does help," said McCullough. "Every little bit helps."

The $100 million that will fund the tax credit was set aside in the state's recently passed budget. Only buyers who purchase new homes are eligible. The home must be the buyer's principle residence, and the credit will be spread out annually over three years.

It is meant to provide a boost to the state's stagnant new home market, and realtors are confident it will.

"Now with the tax credit, hopefully that's just enough stimulus that they'll need to get off of the fence and start making an offer," said realtor John Law.

Buyers hoping to take advantage of this tax credit better act quick. Although the program runs through March, the money is only expected to last long enough for about 10,000 people to receive it.

Jed Kolko is a research fellow at the Public Policy Institute of California in San Francisco. He says the credit could also have unintended negative consequences.

"Sometimes that makes it possible for people to buy a home that they will be available to afford and live in," said Kolko. "But sometimes it means that people will end up with a home that they won't be able to afford."

Still, some buyers say it is not enough to get them to sign on the dotted line.

"It would have to be what deal is best for us, you know, if I can get a foreclosed home much cheaper," said home buyer Bruce Berger.

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