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Happy Family at Home

A first home savings account (FHSA) is a new type of registered plan that allows Canadians to save tax-free for their first home purchase. Introduced by the federal government in 2023, the FHSA lets you contribute up to $8,000 annually, with a lifetime limit of $40,000. You can open an FHSA at various financial institutions, such as banks, credit unions or online brokers. You can also transfer money from other registered plans, such as RRSPs or TFSAs, to your FHSA. Your FHSA contributions are tax-deductible, meaning you can lower your taxable income equal to the amount you contribute. However, you cannot deduct contributions made in the first 60 days of the year from your previous year's income tax return. When you are ready to buy your first home, you can withdraw money from your FHSA tax-free as long as you meet certain conditions. You must be a first-time home buyer, meaning you have not owned or lived in a home that both you or your spouse or common-law partner have owned in the past four years. You must also buy a qualifying house in Canada, which can be a new or existing property suitable for year-round occupancy. You can also use your FHSA with the Home Buyers' Plan (HBP), which allows you to withdraw up to $35,000 from your RRSP to buy your first home. However, according to their rules, you will have to repay  HBP withdrawals separately. The FHSA is a great way to save for your first home and benefit from tax advantages. However, you should also consider other factors, such as your income, expenses, debt level and investment goals, before deciding how much to contribute to your FHSA and when to withdraw from it.

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