Various government and private programs exist to give financial aid to first-time house buyers. Among the most popular is the IRS’s first-time home buyer exception, allowing IRA owners to utilize up to $10,000 in their accounts to fund expenses associated with purchasing, building or rebuilding a first house. IRS guidelines for determining first-time house buyer status are generous.
Time Frame
In many cases, entities offering first-time house buyer incentives require applicants to become first-timers from the literal sense of the term. This doesn’t apply to the IRS definition of a first-time house buyer. To qualify for first-time house buyer status with the IRS, Publication 590 states a individual must have had”no present interest in a principal house” in the two years prior to acquiring the property he will exercise the IRS motivator on.
Spouse Requirement
For a individual to qualify as a first-time house buyer under IRS guidelines, the individual’s spouse must also fulfill the above-mentioned two-year stipulation. For both parties, the IRS defines the date of acquisition as the day a person entered into a contract on a new house or the day the building or rebuilding of a new house initiated, according to Publication 590.
IRA First-Time Home Buyer Exception
The IRS allows IRA owners to utilize around $10,000 of the IRA money to fund the purchase, building or rebuilding of a new home before retirement, with no penalty. In most cases, eliminating money from an IRA prior to age 59 1/2 activates a tax penalty of 10 per cent, in addition to regular income taxes that are applicable. When an investor has held her Roth IRA accounts for at least five years, she can remove around $10,000 for first-time house buyer expenses completely tax-free, such as earnings generated on initial contributions. For traditional IRA accounts, the amount withdrawn requires the recipient to pay regular income tax on the withdrawal; however, the 10 percent tax penalty doesn’t apply.