College graduates face mounting student loan debt.
People looking for work are saddled with high-interest credit card debt.
Down payment requirements have increased and become more complex.
• These bills would create a new incentivized savings account that could be opened jointly or individually to benefit qualified first-time homebuyer beneficiaries.
• Similar to the highly popular Michigan Education Savings model, this savings account would provide up to 20 years of investment deductibility off an account holders state income tax, allowing the interest on the designated account to grow tax-free.
• The annual deductibility thresholds are up to $5,000 for a single tax return and $10,000 for a joint filing.
• Use of the account would be self-directed by the account holder, meaning that financial institutions are not required to administer or report based on the account’s designation as a first-time homebuyer account.
• The bills provide freedom for an account holder, such as parents, grandparents or guardians, to open and designate the account for a qualified beneficiary. Since the account is self-directed, the account holder can track the account for reporting on their annual state taxes and provide the Michigan Department of Treasury with the necessary validations that the account is properly maintained.
As a technical matter, and in addition to annual deductibility thresholds, the savings account is capped at $100,000. However, that amount does not prevent the fund from accruing interest in excess of the $100,000 limitation.
If the account is not used by a qualified beneficiary to buy a first-time principle residence in Michigan, the withdrawal may be subject to taxation to the extent that contributions were deducted on a prior year tax return and there was gain on the account. A 10% penalty may also be assessed, unless the non-qualified use is due to the designated beneficiary’s death or disability, bankruptcy, or a transfer to another eligible account.
Under the proposed legislation, the definition of a first-time homebuyer is intentionally broad. Anyone who hasn’t owned a principle residence before (or in the preceding three years) would be an eligible beneficiary of a First-Time Homebuyer Savings Account, making it a smart savings vehicle for someone hoping to return to homeownership after credit or financial recovery.
The following is an overview of provisions of the new tax reform law affecting current and prospective homeowners. Home Ownership Matters will be providing ongoing updates and guidance on this topic in the coming weeks.
To illustrate how the new law might affect a first-time homebuyer, consider the example of Barbara Buyer.
To illustrate how the new law might affect middle-income family of five, consider the example of Steve and Melinda.