Saving for first-time home purchase in Oregon just got a little more tax-friendly.
What is the FTHSA?
A First-Time Homebuyer Savings Account is a special account created by the Oregon legislature in 2018 for resident taxpayers intending to buy their first Oregon home. Subject to income limitations, single filers can claim up to a $5,000 Oregon income tax deduction. Joint filers can claim up to a $10,000 deduction. Interest on accounts up to $50,000 in value may also be deducted.
How can funds be used?
Funds must be used to purchase a first home within 10 years after the account is opened.
Who can contribute?
To claim a deduction the contribution must come from the taxpayer. Someone other than the taxpayer may make contributions to the Account; however, those funds cannot be claimed by the contributor as a deduction, nor may the taxpayer claim the contribution as a deduction.
Why use a FTHSA?
Because the most common income tax rate in Oregon is 9%, funding a First-Time Homebuyer Savings Account allows the taxpayer to avoid paying that state tax on all qualified contributions and interest.
Can only first-time buyers qualify?
There is potential for people to qualify if they have not owned a home in the previous three years.
Are there risks?
Yes! Once money is deposited in a FTHSA and a deduction claimed, it cannot be withdrawn for any purpose other than the purchase of a first Oregon home without payment of a five percent penalty and inclusion of the amount withdrawn as ordinary income in the year of withdrawal. In addition, if no home is purchased within ten years of opening the Account, the entire amount in the Account for which a deduction was taken becomes ordinary income in the following year. Change in residence, unplanned expenses, dissolution of marriage and qualification for a home loan are some of the issues which should be carefully considered before opening an Account.
Advice from a financial advisor and tax professional is strongly recommended prior to opening an Account.
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