If you’re a first time home buyer who has been waiting for February 1 to arrive, it might feel a little like the night before Christmas with visions of tax refunds dancing in your head.
You’ve received your W-2 for 2011 and you’re ready to jump on line or call your tax guy, so you can get that income tax refund you’re planning to use for the down payment on your first home.
Sir Isaac Newton’s Third Law of Motion says: That for every action there is an equal and opposite reaction.
If your action is to claim employee business expenses on your tax return, the equal and opposite reaction might be you’ll be using that refund for the deposit on your next apartment.
The IRS allows the legitimate deduction of un-reimbursed employee business expenses. This can include mileage, education, uniforms etc. The problem is any amounts deducted on Form 2106 (with very limited exceptions) will be calculated as a dollar for dollar reduction in income for purposes of qualifying for your first time home buyer loan.
Let me share a real life example: I recently met with a first time home buyer who was anxious to buy her first home. As requested she provided her most recent three years of tax returns as required by all first time home buyer programs.
The monthly payment($1150) on the home she way buying was within her budget and she was anxious to get the process started. She had recently gotten a promotion and her new job required extensive travel which she could now deduct on her 2011 Federal Tax Return. Unfortunately the expenses she deducted were more than one third of her income and as a result the payment for which she could now qualify is less than $600 a month.
She will be getting a pretty good sized refund this year but will likely be using it for the deposit on a new apartment instead of the down payment on her first home.
I’m not saying you shouldn’t deduct legitimate expenses, but it’s important you understand how that deduction will affect the qualifying for your first time home buyer loan.
It’s become trendy, almost fashionable to find creative ways to avoid income tax liability, unfortunately you may also be creatively finding ways NOT to become a homeowner.
If you’re counting on your tax refund for the down payment on your first home, you should consider finding a down payment assistance program that will provide the money, instead of counting on a large tax refund.
We’ve helped thousands of first time home buyers take advantage of available down payment assistance programs and they have one thing in common, they contacted us.
