First-Time Homebuyer Savings Accounts
With the help of the Colorado Association of Realtors, the State of Colorado has set up a program to allow any Coloradan to set aside up to $50,000 toward the costs of closing on a home. The earnings on those funds (interest and capital gains) are free from Colorado state taxes.
FHSAs (First-time Homebuyer Saving Accounts) are a great way for future homeowners to start saving ahead if time for the costs of buying a home. The initial down payment and closing costs are often times the impediment that keeps people from getting their first home and this is a step to help solve that problem.
These accounts are simple and easy to set up. Not only can you open a new one, you can also designate almost any existing account as an FHSA. To create an FHSA, you simply include a form when you file your state taxes. The form will indicate that you should not be taxed on any earnings because of the account’s FHSA status.
After you use the money toward the closing costs on a first home purchase (yours or someone else’s), you send in a different form to the Department of Revenue showing that the funds were put toward an “eligible cost”.
The money can be used to pay for someone else’s closing costs as long as the person you’re giving the money to is a first-time homebuyer. As with any tax related program, be sure to talk to your tax advisor to see exactly how this would work for you.