Uncle Sam Provides Helping Hand With Down Payment Savings

Don't file your taxes too quickly before finding out what you can get back from Uncle Sam to help you save for your down payment. There's more available to you for increasing your tax refund than just your basic personal deductions. Tax credits can be another way to increase your refund or create one altogether that can inject more bucks into your savings account.

"Thousands of people every year pass up millions of dollars because they don't know they can take advantage of some or all of the credits" available to them, according to the U.S. Housing and Urban Development's website.

As you prepare your Form 1040, be sure to look over the credits below to see if you can increase your personal bottom line:

Earned Income Tax Credit

Last year, more than 21 million taxpayers raked in a boat load of money ($36 billion) through the Earned Income Tax Credit (EITC), a.k.a., Earned Income Credit (EIC). This credit can create a refund boon for low-income working individuals and families. Originally put in the tax code in 1975, the EITC was created to offset the burden of social security taxes and to provide an incentive to work. The IRS says when the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

To find out if you qualify, visit www.IRS.gov and take advantage of the EITC Assistant.

The very basic requirements include:


Must have earned income

Must have a valid Social Security Number

Investment income is limited to $2,650

Filing status cannot be "married filing separately"

Generally must be a U.S. citizen or resident alien all year

Cannot be a qualifying child of another person

Cannot file Form 2555 or 2555-EZ (related to foreign earn income)
When you consider the average taxpayer using the EITC was able to pull in about $1,714, that's a good chunk of change for your down payment savings account.

Child Tax Credit

Having children has never been more financially beneficial when it comes to tax deductions. Not only do the tikes count for a deduction as a dependent (2004 amount is $3,100 each, according to IRS.gov), you may also be able to claim a child tax credit for each child that qualifies. For 2004, the maximum amount of the credit is $1,000 for each qualifying child. Here are the stipulations for a qualifying child:


Is claimed as your dependent,

Was under age 17 at the end of 2004,

Is (a) your son, daughter, adopted child, stepchild, or a descendant of any of them; or (b) is your brother, sister, stepbrother, stepsister, or a descendant of any of them whom you care for as you would your own child; or (c) is an eligible foster child, and

Is a U.S. citizen or resident.
As you can see -- here's another area that could put more money into your down payment account. Check with your tax professional to see if you qualify for these deductions and credits.

Individual Development Accounts

You can use an Individual Development Account (IDA) to save towards the purchase or repair of a home, or to pay off a long-term debt. Some companies have partnered with IDA provider to help their employees to make matching contributions.

A list of IDA groups can be found at the IDA Network. The search directory is operated by the Corporation for Enterprise Development in Washington, DC. CED explains that an IDA is a tool to "enable low-income American families to save, build assets, and enter the financial mainstream. IDAs reward the monthly savings of working-poor families who are trying to buy their first home, pay for post-secondary education, or start a small business."

The incentive to the individual saving in an IDA is through the use of matching funds that typically come from a variety of private and public sources. It's like a 401(k) for homeownership.

Published: February 11, 2005