Renters Tax Credit Is Back, but Not Quite Same as Before

The new year brought good news for nearly all renters in California.

The Renters Tax Credit--eliminated as part of tax increases passed in 1991--will again be available for the 1998 tax year to qualified renters.

But don’t expect the state to cut you a check if you qualify. The Renters Tax Credit will only reduce the amount of state income tax owed and is not refundable, according to the Franchise Tax Board.

In previous years, the renter’s credit was refundable if the tax liability was less than the amount of the credit or if the taxpayer had no tax liability at all.

To qualify, the taxpayer must be a renter who has lived at his or her principal place of residence for at least half of the calendar year.

The renter’s credit is $60 for a taxpayer filing state income tax individually who has an adjusted gross income of $25,000 or less. Married couples and head-of-household filers earning $50,000 or less are eligible for a renter’s credit of $120.

Under the previous rent credit plan, any renters could claim the credit, no matter how wealthy they were or if they paid no state income taxes at all.

Be sure to check with your tax advisor, as there are several exemptions stated in the new law that would prevent the taxpayer from claiming the renter’s credit.

For example, the taxpayer cannot be a dependent on another individual’s tax return, the rental property cannot be exempt from property taxes and a taxpayer does not qualify if he or she already has been granted a homeowner’s property tax exemption.

But read the fine print, as there are even exceptions to the exemptions.

In another twist that may help many renters, the new legislation allows part-year residents who qualify to be allowed one-twelfth credit for each full month of California residence during the calendar year.

The renter’s credit is not related to the amount of rent paid and is claimed on the taxpayer’s state income tax return. The state’s renters will save about $133 million a year under the tax credit plan.