Homeownership allows Americans to “build their own personal version of the American dream,” as former President Bill Clinton stated in a 1995 address to the nation. Unfortunately, for many Americans this dream has been becoming less and less of a reality. Since American homeownership’s peak in 2005, there has been a steady decrease in the amount of Americans who own their own home; this number has now reached its lowest point in over 21 years, according to a Jan. 31, 2017, U.S. Census Bureau report. To combat this decline, many states have taken measures to help make homeownership more affordable for residents through favorable state tax treatment.
The most recent state to take such measures is Mississippi. On March 24, 2017, the Mississippi Legislature enacted H.B. 1601, which established first-time home buyer savings accounts. This legislation excludes the following from a resident’s gross income: contributions to a first-time home buyer savings account, interest, other income earned on the account and distributions from the accounts used to pay eligible costs related to the purchase of a single-family residence.
Virginia also has established first-time home buyer savings accounts, which provide similar tax advantages for their users. Virginia’s program excludes interest and capital gains earned by the account from a taxpayer’s gross income. A taxpayer can contribute up to $50,000 of principal to the account, which can grow up to $150,000 while still receiving the state’s favorable tax treatment. In order to be a “qualified beneficiary” of this account, the individual must have never owned or purchased a single family residence. For Virginia, this includes individuals who have owned a single family residence acquired by a gift or inheritance.
First-time home buyer savings accounts are also available to the residents of Colorado. These accounts function similar to the Virginia accounts. And just like its east coast counterpart, Colorado allows residents to contribute up to a total of $50,000 in principal, and the account can grow to up to $150,000 in value. Colorado also allows a person to be the beneficiary of multiple first-time home buyer accounts, as long as the holder of the accounts and the beneficiary are not the same person.
Only time will tell if these efforts by states can reverse the decline of homeownership in America and help residents achieve their own American Dream.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you feel states could do more to help their residents become homeowners?
For more information about this and other state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library.
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