Hours after a new state budget produced a $10,000 tax credit for buyers of new, unoccupied houses in California, home builders began gearing up marketing campaigns around the surprise tax break hoping to spur new traffic to their models this weekend.

"We're definitely getting the word out there as quickly as possible, and big as possible," said Ian Cornell, a Sacramento spokesman for New Jersey-based K. Hovnanian Homes.

Builders and buyers alike also are trying to figure out exactly how the credit will work when it begins March 1. On Friday, as Gov. Arnold Schwarzenegger signed a state budget that eliminates a $40 billion deficit, it was still unclear whether the buyer or builder will process the request, what kind of paperwork it entails and what stage of the sales process a March 1 start applies to.

"It's a little foggy right now," acknowledged Mark Rowson, president of Costa Mesa-based Warmington Residential's Northern California division. The firm has a development in Galt and is scouting Sacramento for new projects.

Whatever the initial uncertainty, builders say they're thrilled. Unlike an $8,000 first-time homebuyer tax credit also approved by the federal government, the California version offers breaks for both first-time and move-up buyers. It also sets no limits on income, meaning even the most expensive homes qualify.

"It's generated interest very quickly," said Rowson.

The $10,000 tax credit surfaced late Sunday as part of Democrats' state budget negotiations to win the vote of Rep. Roy Ashburn, R-Bakersfield. It gives anyone who buys a new house between March 1, 2009, and March 1, 2010, up to $3,333 off their taxes for each of the first three years after buying.

The tax break, aiming to stimulate new sales, begins as home builders come off one of their worst years in half a century. Many big firms have greatly downsized, shut down projects and filed for bankruptcy protection as a majority of buyers in Sacramento and elsewhere rush to buy bank repos. In January, builders closed escrow on just 115 homes in Sacramento County, the fewest for the month in more than 20 years, researcher MDA DataQuick reported this week.

The state Franchise Tax Board will set rules to implement the tax credit program, including whether it applies to a sales contract signed after March 1 or an escrow that closes after the date.

"We're still waiting for the (bill) language. Once we get that we'll have an ability to do an analysis for taxpayers," said Franchise Tax Board spokeswoman Brenda Voet on Friday.

The California Building Industry Association, a Sacramento-based trade group for the state's multibillion-dollar home building industry, believes the tax credit applies to those who close escrow on a new home after March 1.

Spokesman John Frith said Friday the CBIA hopes to meet with the Franchise Tax Board to help develop policies for the credit.

"We want to be sure it's as streamlined and user-friendly as possible," he said.

At Beazer Homes' Sacramento division on Friday, sales executive Michael Penbera said the Atlanta firm also believes buyers who close escrow after March 1 will qualify.

But the question – sales contracts or closed escrows – has sent home builders scurrying to their lawyers. Some expect buyers with sales contracts to try to extend escrow beyond March 1 to get the tax break.

"We have in-house counsel trying to research that," said Warmington's Rowson. He said clients haven't yet called with the question.

Added Penbera, "It has not come up yet. But this is so fresh, we're still waiting to see how it's interpreted by the tax board."

Call The Bee's Jim Wasserman, (916) 321-1102. Read his blog on real estate, Home Front, at www.sacbee.com/blogs.