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DEPENDING ON WHERE YOU LIVE, THE ANSWER IS “MAYBE.” SEVERAL STATES HAVE CREATED TAX-DEFERRED SAVINGS PLANS TO HELP FIRST-TIME BUYERS SAVE UP DOWN PAYMENTS. EACH STATE THAT HAS ESTABLISHED A TAX-FREE FIRST-TIME HOME BUYER SAVINGS ACCOUNT ALLOWS THE MONEY FROM THE ACCOUNT TO BE USED FOR A DOWN PAYMENT AND ALL ELIGIBLE CLOSING COSTS ASSOCIATED WITH BUYING A HOME. ALL PARTICIPATING STATES PROVIDE THAT IF THE MONEY IS USED FOR NON-QUALIFIED PURPOSES, ANY TAXES ESCAPED BY THAT PORTION OF THE ACCOUNT MUST BE PAID, PLUS A PENALTY. IF YOU LIVE IN A STATE THAT ALLOWS YOU (OR SOMEONE GIFTING YOU THE MONEY) TO DEDUCT THE CONTRIBUTION TO THE DOWN PAYMENT SAVINGS ACCOUNT, IT’S A NO-BRAINER. YOUR DOWN PAYMENT IS MADE FROM PRE-TAX INCOME, AND NEVER TAXED. WITH SOME EXCEPTIONS, ALL STATES REQUIRE THAT THE FUNDS BE USED TO PURCHASE A HOME WITHIN THE STATE.