Buying a home requires a lump sum of money for the first-time buyer; this is why most first-time home buyers ask to get a tax credit. To help a first-time homebuyer achieve the dream of owning a home, some options are available to ease the financial strain. There are grants by the federal and state government, and there is also a tax credit. Other individuals who are not first-time homeowners also qualify for these grants if they can meet specific demands. A tax credit entirely differs from a tax deduction; it's not interchangeable like most people think.
Tax Credit.
The tax credit is a reduction in your tax liability—dollar for dollar. It means whatever amount you owe for tax would be deducted from your tax credit with the exact amount. For a new-home owner, it’s a huge relief considering how much must have gone into a down payment for the home.
Tax Reduction.
Tax reduction reduces your taxable income by your tax reduction percentage, leaving you to pay the difference. Tax reduction still saves money, but it’s a far cry from the tax credit.
For you to be considered a first-time homebuyer, you must meet specific criteria the United States Department of Housing and Urban sets, it includes:
- You are a single parent who has never owned a home aside when married to a former spouse.
- A homemaker that is displaced and has only owned a home with a spouse.
- You have never owned a place you call your permanent residence.
- An individual who owned a home that violated the codes of the state or model building and required an amount higher than the cost to build a new home to bring the former into compliance.
If you satisfy all these conditions, you can go ahead and request for a first-time homeowner tax benefit. These credits get granted through the following methods.
Mortgage Interest Credits
The idea behind mortgage interest credit is to make provisions for low earned income families the opportunity to purchase their own homes. It’s an ideal solution as it reduces tax payable. To take part in this opportunity, you need to present a state-issued Mortgage Credit Certificate.
Penalty-Free Ira Payouts
As a first-time homeowner who owns an IRA saving account, you are allowed to withdraw up to ten thousand dollars as payment for your first home. It’s a retirement account you should only have access to it without being charged at about age sixty. But for the benefit of first-timer homeowners, the penalty fee on this deduction is waived.
Credits On Home Improvements Made
Home renovations such as solar panel installation made on your property as a first-time homeowner can qualify as Residential Renewable Energy Tax Credit.
Aside from tax credit, there are other options available to first-time home buyers who might find it difficult to get a home on their own. Make sure you check your local county office for the most recent information.
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