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New Laws Pertaining to First-Time Homebuyer Savings Accounts

A new law was recently signed by the Governor which authorizes tax-preferred First-Time Homebuyer Savings Accounts beginning in the year 2018.  Under the law, when an individual sets up a FTHSA account, he or she may exclude from their Iowa adjusted gross income yearly deposits of $2,000.  Married taxpayers who file a joint return may exclude up to $4,000.00 a year if the money is deposited into a joint FTHSA.  Any interest earned on a FTHSA account, will not be included in a taxpayer’s income.new real estate laws for first time home buyers

At the time that the FTHSA is opened, an individual can designate a sole beneficiary.  The sole beneficiary is required to qualify as a first-time homebuyer both at the time the account is opened and at the time when the funds are withdrawn.  First-time homebuyers are defined as being persons who have not owned, individually or jointly, a single-family or multi-family residence within the past three years.

The account holder may withdraw the funds from the FTHSA at any time, however, to avoid a penalty, the account holder must use the funds to purchase a single family residence in Iowa.  Funds withdrawn from the account for other purposes will subject the account owner to a tax penalty of 10 percent of the withdrawal amount.  There are exceptions if the owner of the account passes away or if the funds in the account are removed by a garnishment, levy or other court order.  If the funds are not used to purchase a home within ten years of the initial funding date, the owner of the account is required to report the total amount of funds in the account in their Iowa income.

The purpose of the act is to encourage the purchase of a single-family residence in the State of Iowa by first-time homebuyers.

By James D. Beatty