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Savings plan lets first-time buyers save without tax consequences

Wednesday - 7/9/2014, 9:12am  ET

Alexandria house for sale (WTOP/Colleen Kelleher)
First-time buyers in Virginia could put $50,000 into a savings account without having to pay state taxes or capital gains, if the money is used for buying a home. (WTOP/Colleen Kelleher)

WASHINGTON - Coming up with the cash to fund what's now often a 20 percent down payment on a first home can be difficult for a lot of people.

But a new Virginia law that went into effect July 1 gives first-time buyers an incentive to save with tax benefits.

The First-Time Homebuyer Savings Plans program allows Virginians to put up to $50,000 into an account.

That money would not be subject to state taxes or capital gains.

"It basically just allows individuals to set up accounts to begin saving for a home," says MaryBeth Coya, senior vice president of public and government affairs with the Northern Virginia Association of Realtors.

"It is somewhat similar to education savings plans," she says.

Additionally, any earnings or investment gains would be exempt from state taxes, although the account has a cap of $150,000.

"It's a good tool to begin educating people and to have them start thinking about putting money away for this," says Coya.

The savings can only be used for costs related to buying a house for the first time.

The money can be used for a down payment and just about any closing costs.

"It does have to be your first home, it cannot be used on any subsequent home," Coya explains.

If someone tries to use his designated account for something other than the purchase of a first house, he would have to pay penalties and back taxes.

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