by Calculated Risk on 7/14/2010 05:48:00 PM

CR Note: This is from housing economist Thomas Lawler.

The State of California Franchise Tax Board reported that it estimates it has received first-time home buyer tax credit applications above the $100 million cap. However, it is still taking applications, as it believes it has received significant amounts of duplicate, revised, or invalid applications. Here are the stats the CFTB has reported on its estimates of applications for the first-time tax credit, as well as the paragraph highlighting that they are estimates only.

The figures shown below are only estimates, based on small samples. The numbers are overstated as there will be duplicate, revised, and invalid applications included as we have not verified any of the applications. These estimates are only provided to give a general idea of the number of applications received and the amount requested for the First-Time Buyer Credit. We are showing 57% of the estimated requested credit since the $100 million cap will only be reduced by 57% of the credit allocated to the buyer. The amounts do not reflect actual amounts which will be allocated. These estimates will be updated each Thursday until we are sure that we have received more than enough applications to allocate the full $100 million. Once we determine that we have received sufficient applications to allocate the full $100 million, we will stop accepting applications for the First-Time Buyer Credit. Estimates for the New Home Credit will be provided once our computer system is completed.

Applications for First-Time Buyer Credit received as of 07/13/10
As of	Estimated Total First-Time Buyer Applications Received	57% of Estimated Requested Credit
5/4/2010	430	$2,351,000
5/11/2010	2,470	$13,283,000
5/18/2010	4,830	$25,473,000
5/25/2010	7,330	$38,357,000
6/1/2010	9,760	$50,948,000
6/8/2010	12,740	$65,787,000
6/15/2010	15,220	$78,108,000
6/22/2010	17,860	$91,404,000
6/29/2010	20,760	$105,898,000
7/6/2010	23,680
7/9/2010	25,120
7/12/2010	25,790
7/13/2010	26,260

Amazingly, the CFTB – which handled a similar tax credit last year, notes the following on its website:

“We have not processed any applications yet as our computer system is still being developed. Once our computer system is completed, we will provide weekly updates on the number of certificates that have been mailed and the amount of credits that have been allocated.”

The CFTB notes that in order that it does not risk cutting off the program “too soon,” it “will wait for the computer system to be released before we determine when to stop accepting First-Time Buyer applications.” It also notes, however, that it “will only issue approved certificates of allocation until the $100 million is exhausted,” and the allocation is based on a first-come/first served basis. As such, there is some risk to home buyers that they may not get the credit they hoped for. And since applications must be faxed AFTER escrow closes, ...

According to the CFTB, “(w)e expect it to take 3-6 months to notify taxpayers after an application or reservation is received,” because “(w)e need to develop a computer system to capture, verify, reserve or allocate, issue letters, and track the credits.

The CFTB also provided some updated estimates for the new home tax credit, which also are “only estimates, based on small samples.” This credit is also capped at $100 million.

As of	Estimated Reservation Requests Received	Estimated Applications Received	Estimated Total Reservation Requests and Applications Received	70% of Estimated Total Requested Credit
06/15/10	1,930	3,700	5,630	$ 36,360,000
06/22/10	2,250	4,180	6,430	$ 41,683,000
06/29/10	2,600	5,150	7,750	$ 50,136,000
07/06/10	2,850	5,950	8,800	$ 57,191,000

For those who forgot, each credit enables an eligible home buyer to get a state income tax credit of up to $10,000, taken in equal installments over three years. The credit cannot reduce a borrower’s tax to below zero, and last year’s experience was that many borrowers were not able to take advantage of the full $10,000 credit. So here is the rationale for the 57% and 70% “haircuts.”

“The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. However, since many taxpayers will not be able to utilize the entire tax credit, the legislation specifies that the $100 million cap for the New Home Credit will be reduced by 70 percent of the tax credit allocated to each buyer and the $100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. For example, if a taxpayer is allocated $10,000 for the New Home Credit, the $100 million cap for the New Home Credit will only be reduced by $7,000. If a taxpayer is allocated $10,000 for the First-Time Buyer Credit, the $100 million cap for the First-Time Buyer Credit will only be reduced by $5,700. The 70 and 57 percent reductions do not impact the amount that can be claimed by the taxpayer.”

This sure doesn’t seem like a well-run program!!!!!

CR Note: This is from housing economist Thomas Lawler.