A New Way to Save for a Down Payment?
If you’ve given even a passing moment’s notice to Wisconsin politics lately, you’ll know that we have a new Governor, and a new state budget in the works. One of the items that Governor Evers is hoping to pass with the 2019-21 budget could benefit prospective home buyers. This item is called the First-Time Home Buyer Savings Account (FHBSA) and it could give first time buyers an easier way to save for a down payment on a home.
In an effort to address the rising costs of home ownership and large student loan balances that many of today’s first time buyers are carrying, the FHBSA would offer savers an easier path to a downpayment than traditional saving methods. In addition to being exempt from Wisconsin taxes (interest and capital gains are not subject to Wisconsin taxes) the FHBSA would offer the following benefits:
- First time home buyers would be eligible to participate, in addition to any previous home owner who had not owned a single family home in the past 36 months.
- As mentioned previously, the interest and capital gains on savings would grow tax free (state tax only). Home buyers who participate in the program would not have to pay Wisconsin capital gains tax when they withdraw the money to purchase a home.
- Contributions would be deductible. Money deposited into an FHBSA account (up to $5,000 individual and $10,000 if filing joint, per year) could be deducted on your tax return – up to $50,000 total over the lifetime of the account.
- Withdrawals would not be taxed. The FHBSA would be unique in that both contributions and gains and interest earned on the contribution could be withdrawn tax-free.
There would be a few limitations on the FHBSA account. In order to ensure that the account is used as intended, for the purchase of a home, there would be a 10 year “limit” on the account. If the prospective home buyer did not purchase a home within 10 years of opening the account, then the money deposited would be returned to the account owner. There would also be a maximum $50,000 limit on the amount of deductions that can be withdrawn over the lifetime of the account. Finally, withdrawing funds from the account for a purpose that wasn’t an authorized use of the account would result in a 10% penalty, plus any capital gains on the amount withdrawn.
At least 9 other states across the country have FHBSA programs for prospective home buyers. Hopefully Wisconsin will be joining them when the new budget is passed and we can pave the way for an easier road to home ownership for new buyers. Housing has a significant impact on jobs and the local economy, and if Wisconsin makes home ownership more attainable to the new generation of buyers, everyone wins.