Summary
Establishes special savings accounts where first-time homebuyers can save money tax-free to help them buy or build their first home.
What problem does this solve?
Buying a first home is very expensive, and many people find it hard to save enough money for a down payment and other costs. This bill helps by creating a special savings account that gives people a tax break, making it easier to save for a first house.
Who does this affect?
- First-time homebuyers
- Renters
- Financial institutions
What does this bill do?
Creates first-time homebuyer savings accounts
Establishes a new type of savings account with tax benefits. These accounts are for people who have not owned a home in the last three years.
Allows tax deductions for contributions
Permits individuals to subtract up to $10,000 per year from their taxable income for money they put into their first-time homebuyer savings account.
Allows tax-free withdrawals for home expenses
Money taken out of the account is not taxed if it is used for qualified costs. These costs include buying, building, or other expenses for a main home.
Sets income limits for deductions
Prevents individuals with a yearly income over $200,000 (or $400,000 for married couples filing together) from getting the tax deduction for their contributions.
Reference
Text:
Section:
Sec. 225A(e)(2)
Header:
Inclusion of amounts not used for qualified homebuyer expenses
Penalizes improper withdrawals
Adds a 10% tax penalty to any money taken out that is not used for buying a home. That money will also be counted as regular income and taxed.
Reference
Text:
Section:
Sec. 225A(g)
Header:
Treatment of account after acquisition of residential property
Allows funds to be rolled into a retirement account
Lets account holders move any leftover money into an Individual Retirement Account (IRA) without a penalty after they have bought a home.
What is the real world impact?
•
Makes buying a first home more affordable
Helps people save for a down payment and other costs by providing a tax deduction. This can make owning a home a reality for more individuals and families.
When does this start?
The new savings accounts and tax rules will be available for tax years starting after the bill is signed into law.
Using funds after buying a home
Account holders can use the funds for home-related expenses for up to 3 years after the date they buy or finish building their home.
Reference
Text:
Section:
Sec. 225A(g)(1)
Header:
Treatment of account after acquisition of residential property
Transferring leftover funds to an IRA
After the 3-year period for using funds ends, account holders have 180 days to move any remaining money into an IRA before the account is closed.
Rolling over funds to another account
An account holder can move money from one first-time homebuyer account to another but must complete the transfer within 60 days to avoid taxes.