Schaub Team Blog
Posted by Jamie Jewell on Feb 28 , 2023 - 08:09 am
It’s been one year since the Michigan First-Time Home Buyer Savings Program was signed into law. We thought we’d delve into the top questions surrounding this program to help you determine if it could be a good fit for you or your family members.
The savings plan was created to assist first-time home buyers with the purchase of their Michigan principal residence. Account funds may be used for the payment or reimbursement of eligible costs associated with the purchase of a single-family residence by a qualified beneficiary designated on the account.
Q: How can I open a first-time home buyer savings account?
A: A savings, checking, or money market account at any financial institution. The account holder will designate the account as a first-time home buyer account when filing a Michigan income tax return. The financial institution has no role or responsibility in designating the account as such.
The funds in a designated account for the purpose of first-time home buying cannot have funds comingled with funds from other accounts nor can funds in this account be used for purposes other than the payment or reimbursement of eligible costs associated with the purchase of a first-time residence in Michigan by the qualified beneficiary.
Q: Who is a qualified first-time home buyer?
A: A first-time home buyer is a Michigan resident who has not owned or purchased (individually or jointly) a single-family residence during a period of 3 years before the date of the purchase of a Michigan single-family residence.
Q: May an individual be the account holder of more than one first-time home buyer savings account?
A: Yes, however, each account must have a different qualified beneficiary. For example, grandparents could set up multiple accounts for grandchildren, but each account must be separate and have a different beneficiary assigned to each account.
An individual may also be designated as the qualified beneficiary on more than one first-time home buyer account, but the account holder must be a different person.
Q: What is the maximum account balance for a first-time home buyer savings account?
A: The maximum account balance is $50,000. Once the maximum has been reached, no more contributions can be made. However, accounts may continue to accrue interest after the maximum is achieved.
Q: Are contributions to a first-time home buyer account tax deductible?
A: Yes, contributions made during the tax year may qualify for a deduction from Michigan taxable income to the extent that they are not deducted when determining adjusted gross income (AGI). Contributions must be netted against qualified withdrawals made in the same year for a total deduction of up to $5,000 on a single or married filing separate return, or $10,000 on a jointly filed return.
Q: What happens to the funds in a first-time home buyer account when the account holder dies?
A: The financial institution will distribute the principal and accumulated interest or other income in the account according to the terms of the contract governing the account when proof of death of the account holder is furnished.
Q: Is there a penalty for withdrawing funds and using them for purposes other than to pay or reimburse “eligible costs” associated with the program?
A: Yes, funds withdrawn for any purpose other than the payment of eligible costs by or on behalf of the qualified beneficiary are subject to a penalty equal to 10% of the amount withdrawn.
For more information on this program, visit the Department of Treasury’s website.