In 2021, Maryland REALTORS® sponsored legislation (HB 1178) to create First-Time Homebuyer Savings Accounts. These accounts are a way for you to save for your home purchase while receiving a state tax break on the contributions and account earnings. Here’s what you need to know:
Who is Eligible?
For the purposes of this program, any resident who has not owned a home in Maryland for the past 7 years may establish an account. In addition, you must follow these provisions:
- The first-time buyer must open the account.
- The buyer must hold the account in their name.
- Buyers may not have more than one account.
- Two first-time buyers can open an account with another first-time buyer if they file their taxes jointly.
- Only the buyer(s) on the account can claim the tax deduction.
How Can Family Members Help?
While family members or others are not allowed to open accounts for the benefit of a first-time buyer, they may make financial contributions to the buyer for deposit into the account. But remember, only the first-time buyer listed on the account can receive a tax deduction for account contributions.
How Can the Account Funds be Used?
The accounts can be used to cover a down payment and the closing costs of an account holder for the purchase of a home in Maryland.
What Happens if I Don’t Use It for a Home Purchase?
If funds from the account are not used for the purchase of a home, they are considered taxable income for the tax year in which they were withdrawn. The account holder must also pay a penalty equal to 10% of the amount withdrawn.
Exceptions to that rule are:
- You may rollover of the account funds into another First-Time Savings Account.
- You can disburse the funds in the event of bankruptcy.
- You can use the funds to cover administrative fees charged by the account’s financial institution.
How Long Do I have to Use the Account?
Funds must be used within 15 years following the date the account was established. Any funds in the account that are not used for eligible costs by December 31 of the 15th year are subject to taxation as ordinary income.
Where Can I Find a First-Time Homebuyer Savings Account?
Some banks are beginning to market accounts specifically designated for first-time homebuyers. However, you are not limited to using those accounts or those institutions.
An account from any financial institution can qualify as a First-Time Homebuyer Savings Account so long as it is established for the sole purpose of purchasing a home in Maryland by the account holder.
How do I Claim the Tax Exemption?
For up to 10 years, an account holder may claim a state tax subtraction for up to $5,000 of the annual amount contributed by the account holder plus earnings for the taxable year, for a total of $50,000. The First-Time Homebuyer Savings Account Subtraction may be claimed on Form 502SU, line “ww.”
Where Do I Go if I Have More Questions?
The Office of the Comptroller has added additional guidance on these accounts on its website: Tax Credits, Deductions and Subtractions (marylandtaxes.gov)