With rising home prices, more state lawmakers are proposing legislation to help home shoppers tackle the down payment obstacle. More states this year have considered or are considering passing laws to allow for tax-saving down payment accounts to aid first-time buyers.
Three states authorized such accounts this year: Iowa, Minnesota, and Mississippi. Colorado, Montana, and Virginia already have such accounts in place.
The established down payment accounts vary by state. In general, they allow first-time home buyers to save for a down payment or related expenses, like closing costs, in dedicated savings accounts. These accounts typically feature tax breaks for contributions, such as being able to deduct the amount saved that year from state income tax returns. In Minnesota, however, the contribution is not deductible, but savers can subtract the interest earned on the savings from their taxable income. Mississippi, on the other hand, offers a tax benefit in both contributions and gains.
States usually cap the amount that can be saved in these accounts per year. For example, in Mississippi, buyers can set aside up to $5,000 each year as couples, and $2,500 as individuals.
Down payment accounts can be helpful to first-time buyers, particularly with rising home prices, Adriann Murawski, state and local government affairs representative with the National Association of REALTORS®, told The New York Times. NAR has supported legislation to create these accounts within states. Murawski told The New York Times that she hopes other states will decide to follow suit in 2018, such as Alabama, Louisiana, Michigan, Missouri, and Pennsylvania.
Source: “How Some States Are Helping First-Time Home Buyers,” The New York Times (Dec. 8, 2017)