FIRST-TIME HOMEBUYER TAX ADVANTAGES The extra cash you need to meet the financial obligations of buying a home can appear elusive. However, tax credits and tax break options have been designed to make it easier for buyers to buy their first homes. HUD’s definition of a first-time homebuyer is someone who meets any of the following conditions: d An individual who has not owned a principal residence during the three-year period ending on the date of purchase of the property. A person’s spouse is also a first-time homebuyer if either person meets the above criteria. d A single parent who has only owned a home with a former spouse while married. d A displaced homemaker who has only owned with a spouse. d An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations. d An individual who has only owned a property that was not in compliance with state, local or model building codes — and which cannot be brought into compliance for less than the cost of constructing a permanent structure. First-time homebuyers can get grants and qualify for credit from the IRS. According to bankrate.com, the original first-time homebuyer tax credit provided buyers with a tax credit of up to $7,500. The tax break subsequently was expanded, with a new credit limit of $8,000 for first-time homebuyers and $6,500 for homeowners seeking to move into another residence. There is a difference between a tax credit and a tax deduction; these are not interchangeable. A tax deduction reduces taxable income, but actual tax reduction is based on tax bracket. According to the IRS, a tax credit is a dollar-for-dollar reduction in the taxes owed. A tax credit saves the taxpayer more than a tax deduction, i.e., a tax credit of $100 would reduce your tax obligation by $100, while a tax deduction of $100 would reduce your taxes by $25 if you are in the 25% tax bracket.
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