Monday, November 16, 2009

Can You Use the Home Buyer Tax Credit for Down Payment.

Yes. If you expect your home purchase to qualify for the tax credit you can reduce your income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable you to accumulate cash by raising your take home pay. This money can then be applied to the down-payment.

The IRS Publication 919 contains rules and guidelines for income tax withholding. Note that if your income tax withholding is reduced, but you end up not qualifying for the tax credit, then you’ll be liable to repay the tax amount plus possible interest charges and penalties.

Also HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund, provided the FHA lender offers the option of purchasing the tax credit in advance.

There are a more options on how you can apply your tax credit. Read through the FAQs on the National Association of Home Builders (NAHB) site and consult your tax advisor to determine the best plan of action for you.

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