Iowa First-Time Homebuyer Savings Account Act Available in 2018 Tax Year
For many first-time homebuyers, coming up with the down payment can be a challenge, as many in this market are younger people who are just starting careers, paying off student loans and working on a tight budget to make ends meet.
The Iowa legislature recently passed and the governor signed the housing savings bill which will help young individuals and couples accumulate the needed funds for a down payment and become homeowners. Below is a summary of what is included in this new legislation:
- Applicable for tax years beginning 1/1/18
- The law allows a subtraction from adjusted gross income for Iowa residents who establish a savings account for the purpose of paying or reimbursing a designated beneficiary’s eligible home costs in connection with a qualified home purchase. The account can be used for a down payment and closing costs for a principal residence in Iowa. The account must be setup with an Iowa bank or Iowa credit union.
- There is no requirement that somebody actually be a first-time homebuyer to set up such an account. You do, however, need a designated beneficiary for such an account who is a first-time homebuyer.
- Deposits qualifying for the income tax subtraction are limited to $2,000 per year for an individual account or $4,000 per year for a married couple with a joint account. Therefore if the account was funded for 10 years and then the purchase was made, it could have up to $20,000 or $40,000 in it.
- Interest earned on account balances is also exempt from income tax.
- The beneficiary must be an Iowa resident. They qualify as a first-time homebuyer if the resident has not owned, either individually or jointly, a single or multifamily residence for the previous three years.
- Withdrawals, including interest, will be tax-free to the extent they are used by a first-time homebuyer to buy a house in Iowa.
- If the money in an account is withdrawn for a nonqualified reason or if the money is not used to purchase a home within 10 years, the money not used for a qualifying purchase, plus 10%, is added to the account holder’s taxable income for income tax purposes. The 10% penalty does not apply if the withdrawal is due to the death of the account holder or due to a garnishment, levy, or order.
To learn more about this first-time homebuyer savings program, contact us.