First Time Homebuyers

A savings account for qualifying homebuyers that offers tax savings on the deposits and interest earned.

First-time or second-chance homebuyers (i.e., any Alabamian who has not owned or purchased, either individually or jointly, a single-family residence during a period of 10 years prior to the date of the purchase of a single-family residence).

Any bank, savings institution, industrial loan association, credit union, or other similar entity authorized to do business and accept deposits in Alabama.

Today. The First-time and Second-Chance Homebuyer Act was effective January 1, 2019. An individual must open a firsttime/second-chance homebuyer savings account between January 1, 2019 and March 28, 2023.

If you are a qualifying homebuyer, the deposits and interest earned will help you make the purchase. Deposits reduce your income from state income taxes and interest earned is tax free.

Individuals can deduct up to $5,000 per year from their state gross income for deposits into a First-time/Second-Chance Homebuyer Savings Account. Couples can deduct up to $10,000 per year. It’s a dollar-for-dollar deduction up to the threshold (i.e. an account holder who deposits $10 into a savings account can deduct $10 from his or her state gross income; joint account holders who deposit $10,500 can deduct $10,000).

Single-family residences in Alabama, including a manufactured home, trailer, mobile home, condominium unit, or cooperative.

Five years, after which time any account funds not spent on qualifying costs will be included in the account holder’s taxable income

No. Deposits are not limited. There are, however, limitations on income tax deductions from the deposits. Income tax deductions for individuals are limited to $5,000 per year for a total of $25,000 over five years, and joint savings account holders who fi le taxes jointly can deduct up to $10,000 per year for a total of $50,000 over five years. For example, you can deposit $100,000 in the account over the five-year period but can only deduct $25,000 or $50,000 depending on your tax fi ling status.

Yes. While deposits are not limited, the income tax deductions are.

No. A First-time/Second-Chance Homebuyer Savings Account must be a new, separate account specifically designated as First-Time/ Second-Chance Homebuyer Savings Account to be used solely for the purchase of your first home.

The down payment and disbursements listed on the settlement statement for the purchase of a home in Alabama.

Not if you are a first-time or second-chance homebuyer and use the money toward the down payment and/or settlement costs of a home purchase in Alabama.

On your tax return, as an adjustment to income, deduct the deposits into your First Time/Second-Chance Homebuyer Savings Account made during the tax year for which you are filing a return (Alabama form 40, Page 2, Part II). Submit to the Alabama Department of Revenue the Form 1099 that you receive from the financial institution for the account, and, if not specified on the Form 1099, a list of transactions for the account during the tax year (monthly or quarterly statements for the year will provide the transaction detail required). Failure to provide sufficient information to the Alabama Department of Revenue may cause the deduction to be denied and the interest earned to be taxed and a penalty to be incurred.

No. While non-account holders can deposit funds into another’s savings account, income tax deductions are limited to the account holder

If no other account holder is on the account, the account funds will be dispersed by the financial institution either under the terms of the account contract or as directed by law. The 10 percent penalty will be waived, but the accounts may be subject to tax as gross income. If another account holder is on the account, the living account holder may leave the account open, subject to the five-year limitation.

Accounts may only be opened by Alabama residents and the funds must be used to purchase a home in Alabama. If the funds are not used to purchase a home in Alabama, any amounts previously deducted and the interest not previously taxed must be included in the taxpayer’s income. Also, deductions from deposits only reduce income on your Alabama tax return, not income on tax returns for other states or the federal government.

Withdraw the funds from the account and use the funds to pay for eligible costs.

Upon withdrawal of funds from the savings account to pay for eligible costs, send the Alabama Department of Revenue: a detailed account of the eligible costs toward which the account funds were applied (the closing statement) a statement of the funds remaining in the account, if any (account statement)

Withdraw the $500 from the account. When filling out your income tax return, you will do one of two things: (A) If the $5,000 was deducted from your income in a previous year, you will need to add the $500 not used to purchase the home to your income; or (B) If you have not deducted the $5,000 from your income, you will only deduct from your income the $4,500 or amount up to $4,500 total not already deducted.

Unless the full amount withdrawn is deposited into another First-Time/Second-Chance Homebuyer Savings Account within 60 days of withdrawal, the entire account balance, including interest, will be taxed, and the amount withdrawn assessed a 10 percent penalty. Rolling the FHSA into another FHSA does not extend the five-year requirement to use the funds to purchase a home in Alabama.

No, rolling over funds from one FHSA to another does not extend the time requirement to utilize the funds for purchasing a home.

Yes. You can open the account but cannot purchase the home until 10 years after you have previously owned a home.

Yes. You can open the account but cannot purchase the home until 10 years after you have previously owned a home.

Unless the full amount withdrawn is deposited into another First-Time/Second-Chance Homebuyer Savings Account within 60 days of withdrawal, the entire account balance, including interest, will be taxed, and the amount withdrawn assessed a 10 percent penalty. The penalty will be waived if the withdrawal is due to:

1. 1. The account holder dying
2. 2. The account holder becoming disabled
3. 3. The account holder exhausting unemployment compensation benefits
4. 4. The account holder’s bankruptcy filing

The entire account balance including interest should be withdrawn and will be included in the taxable income in the year it is withdrawn. A 10 percent penalty will be assessed. The penalty will be waived if the withdrawal is due to:

1. 1. The account holder dying
2. 2. The account holder becoming disabled
3. 3. The account holder exhausting unemployment compensation benefits
4. 4. The account holder’s bankruptcy filing

Yes. The deductions for deposits only apply to your income for state tax purposes. Interest earned is still subject to any applicable federal taxes.

A savings account for first-time homebuyers that offers tax advantages. Individuals can contribute up to $2,500 a year. Couples can contribute up to $5,000 a year.

Any Mississippian who has never purchased, owned, or partially owned a home in Mississippi or any other state.

You can create a First-time Homebuyer Savings Account at any bank, credit union, or other financial institution licensed to do business in Mississippi. It can be a cash deposit account or money market account.

When you are ready to buy a single-family home, you will have money saved to help make the purchase. Plus, money deposited in the account is deductible from state income, which lowers your tax bill. Interest earned on the deposits is also free from state income tax.

You can open a First-time Homebuyer Savings Account and start saving today. You can start taking a tax deduction beginning in the 2018 tax year.

Beginning in 2018, individuals can deduct up to $2,500 from their state adjusted gross income when they make deposits into a First-time Homebuyer Savings Account. Couples can deduct up to $5,000 a year.

Eligible single-family homes include newly- constructed homes, existing homes, manufactured homes, modular homes, mobile homes, condominium units, or cooperatives.

Savings can be used for down payments, loan origination charges, appraisal fees, credit report fees, flood certifications, title charges, deed charges, and other closing costs listed on the settlement statement of a first-time home purchase.

Your account can stay open year after year until you decide to buy your first home in Mississippi as long as the account holder is a qualified first-time homebuyer.

No. Every year, individual filers can save up $2,500. Married couples filing jointly can save up to $5,000 every year. Deposits can be made year after year so long as at least one (1) qualified account holder remains alive.

A single account holder and married couples filing jointly can deposit more than stated limits each year, but the excess money is not eligible for a tax deduction and is treated as ordinary income.

No, First-time Homebuyer Savings Account must be a new, separate account designated for a first-time home purchase in Mississippi through a qualified financial institution.

No, as long as the money is used for a down payment or allowable closing costs of a first-time home purchase in the state of Mississippi by a qualified beneficiary.

The Department of Revenue is creating forms to report First-time Homebuyer Savings Account contributions beginning with the 2018 tax return.

Yes; the law defines an “account holder” as an individual who establishes a savings account individually or jointly with one or more other individuals. A grandparent can open an account with a grandchild. The grandchild, as a qualified beneficiary, could claim first-time homebuyer savings account status on his or her Mississippi income tax return when he or she qualifies to file one. Remember that only cash and marketable securities may be contributed to the account.

If the account holder who is a qualified beneficiary dies and there is no other qualified beneficiary on the account, the money in the account can be withdrawn by the surviving joint account holder or the legal heir of the deceased. The ten percent penalty will be waived, but the money may be subject to tax as gross income.

The amount withdrawn for an unqualified use is taxed as gross income and also assessed a 10 percent penalty.The penalty will be waived if 1) the account holder dies, 2) the account holder becomes disabled, 3) the balance is disbursed as part of bankruptcy filing, or 4) the balance is transferred to another First-time Homebuyer Savings Account.

Your account can remain open if you move out of state. However, the savings only can be used for an eligible purchase in Mississippi. If the money is withdrawn for an unqualified use, it will be subject to gross income tax and a 10 percent penalty.

Deposits to the First-time Homebuyer Savings Account are exempt from state taxes up to the annual limit. However, the deposits are still subject to federal taxes, depending on your individual tax situation. Annual earned interest on the accounts is also exempt from state tax, but is still subject to federal tax. (See Figure 1.)

Figure 1: Federal and State tax chart

 
This FAQ provides general information and should only be used for general information purposes. This FAQ is not intended to be, and should not be considered, legal or financial advice. Any questions should be directed to a properly qualified legal, tax or financial advisor.

No. The account holder is responsible for ensuring his or her eligibility and filing the appropriate tax forms. The financial institution will issue a 1099 as it normally would for any interest-bearing deposit account.