Americans’ financial circumstances are in much better shape today than during the 2008 Great Recession. With more job security and higher income, the prospect of buying your first home is more appealing than ever, and now your state may also be willing to help with your first big purchase by offering an attractive tax break in the form of ‘first-time home buyer savings accounts’.
A new state offered program called first-time home buyer savings accounts’ offers tax deductions for those looking to buy their first home
New State-Offered Program
Yvette Best from Best Services Unlimited says that with the recent tax breaks and deductions, prospective home buyers have the perfect opportunity to invest in their first property. There are several ways new homeowners can lower their tax liability after buying a house which can save them thousands of dollars in the form of housing credits and tax deductions.
A new program called first-time home buyer savings accounts, approved by a number of state legislatures around the country, allows potential homeowners to save money for their mortgage down payment. More than half a dozen states have already authorized the bill, with Oregon and Alabama as the most recent states to join. Others may also consider adding them to their legislatures in the future.
The accounts provide a great incentive for future homeowners to take advantage of the tax breaks and save more money for their first down payment. In some states, these tax advantaged programs aren’t just for the first-time home buyers but also for those who have previously owned a home and are investing in their second property.
Rising Home Prices
Todd Umbenhauer, the chairman of Pennsylvania Association of Realtors, said that in the past few years, the number of new homeowners entering the market has been shrinking because of the rising home prices which is making harder for Americans to meet down payments.
According to a survey by the National Association of Realtors, first time home buyers accounted for less than 32 per cent of the home sales in 2017, a number far less than the 40 per cent average in the past.
Umbenhauer thinks that the high demands and limited inventory is driving up home prices in the country with average sale prices soaring above $238,800. A study by Zillow shows that average property value has risen by 8.7 per cent in one year and is expected to continue on an upward trend next year as well.
In Pennsylvania, the tax advantaged programs allow first-time and recurring homebuyers to save up to $50,000 in a separate account over 10 years using tax-free earnings. Those who file taxed individually can only make an annual contribution of $5,000 or less whereas married couples filing joint tax returns can put up to $10,000 in the designated savings account. All contributions are tax-deductible on state returns.
Average home value has risen by 8.7 per cent in one year and is expected to continue on an upward trend next year as well
More States Introduce Savings Program
Savers can open their account in a bank, brokerage or any other state-operate financial institution. The account can either be in the name of the person making the contribution or a beneficiary chosen by the saver, and like all state programs, the funds are subjected to rules and regulations regarding a specific timeframe in which the money must be used specifically with the intention of buying a house.
Failure to use the money in a specified timeframe could result in severe penalties. Homeowners may also be subjected to additional rules if they decide to transfer their funds to a different account or financial institution.
Those in support of the saving program say that the tax benefits could offset the rising interest payments on debt and increasing home prices, helping upper middle class families to save money for down payments more easily. Public Policy analyst Daniel Hauser says that in parts of Oregon, home prices have risen so high that saving for down payments seems impossible. The state will also introduce first-time home buyer savings accounts from 2019 onwards which will only be available to those earning $149,000 or lower in gross annual income.
Montana was one of the first states to pass the homeowner savings bill in 1998 and other states including Minnesota, Colorado, Iowa and Mississippi have followed suit in the past few years. Although the state of Virginia has introduced the program since 2014, officials claim that very few people have taken advantage of the tax deductions.
