First Time Home Buyer Savings Account

First Time Home Buyer Savings Account

Information Website: http://www.msuextension.org/

Purpose: This is a special savings account for the purchase of a first home and to save on Montana income taxes because of the First-time Home Buyer Act. A Montana resident can contribute any amount into a first-time home buyer savings account. However, the maximum amount that can be used to reduce Montana taxable income is limited to $3,000 annually for each taxpayer who files singly, head of household, or married (filing separately). For married couples who file their tax returns jointly, the maximum amount that can be used to reduce Montana taxable income is limited to $6,000 annually. The account can be established at a state or federally chartered bank, a savings and loan, a credit union, a trust company, a mutual fund company or with a brokerage firm. The account must be kept separate from all other accounts (e.g., checking or savings accounts, IRAs, medical care savings accounts (MSAs) and so on). It must be maintained specifically for the purchase of a single-family home by the account holder.

Eligibility for First-Time Home Buyer Savings Account: Montana residents who have not previously purchased a single family residence (home, condo, townhouse, or modular or mobile home on a permanent foundation) and who file income tax returns can contribute to a first-time home buyer savings account. If a married couple buys a home in one spouse’s (husband) name only and the other spouse (wife) has never been an owner of a home, then the wife would qualify as a first-time home buyer if she were to be a purchaser of a home in the future. She could open a first-time home buyer account.

Requirements under the First-Time Home Buyer Act: Montana residents must open a first-time home buyer savings account after Dec. 31, 1997 to qualify for a Montana income tax reduction. Montana residents who bought their first home before Jan. 1, 1998 do not qualify. If taxpayers have previously owned a home, condominium, townhouse, or modular or mobile home with a permanent foundation at any other time, in any other state or country, they do not qualify for first-time home buyer savings accounts. The first-time home buyer savings account must be established prior to the purchase of a single-family home. You can’t buy a home and then open the savings account retroactively. Money in a first-time home buyer savings account must be used for eligible home buyer expenses to qualify for a Montana income tax reduction.  The first-time home buyer account holder must use the money for eligible costs related to the purchase of a single-family residence within 10 years following the year in which the account was established.

Eligible Expenses: Money withdrawn from a first-time home buyer savings account is not subject to Montana income taxation if used for eligible costs for the purchase of a single-family residence by a first-time home buyer. Examples of eligible expenses include: down payment, closing costs, realtor’s fees, appraisal costs, credit history report, points, pro-rated property taxes and loan origination fees.

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