New Iowa Law Creates Tax Credit for First-Time Homebuyers
Homeownership is something many families strive for, but it is difficult to save for a down payment on a first home. Fortunately, the 2017 Iowa Legislature passed a law that created a new income tax credit for first-time homebuyers. Iowa residents will be able to take advantage of the new tax credit on deposits made after Jan. 1, 2018. “One of the main goals is to help customers achieve their financial goals, and homeownership is often chief among those goals,” Scott T. Bauer, President of First National Bank said. “Any tax credit that can help people achieve that goal is a good thing.”
How it works
The tax credit can be accessed through the use of a homebuyer savings account, which can be set up and maintained at First National Bank. To qualify for the tax deduction, the homebuyer must be a first-time homeowner who has not previously owned – either individually or jointly – a single or multifamily residence in the previous three years. Here’s how it works:
A qualifying first-time homebuyer savings account must be an interest-bearing savings account and established with a state or federally chartered bank, savings and loan association, credit union or trust company in Iowa.
The account holder can make unlimited deposits each year to the homebuyer savings account.
The income tax deduction is limited to $2,000 per year when filing individually and $4,000 per year when filing jointly.
Interest earned on account balances is exempt from state income tax.
Accounts can be opened in another person’s name. For example, a parent could open an account and contribute to it as a gift to a child. As long as the funds are used toward the purchase of a first home, it will qualify for the tax deduction
The maximum amount that qualifies for the exemption will be adjusted annually for inflation.
The money within an account is available for up to 10 years to be used for the qualifying purchase costs of a single-family residence.
Contact your tax professional today to learn more about homebuyer savings account requirements and if it is a good option for you.