Homeownership rates in the U.S. have been on a steady decline since 2005, according to U.S. Census Bureau data. Various states, such as Virginia, Mississippi, and Colorado, have established these accounts as a way to encourage home-ownership, as previously detailed by Bloomberg Tax; now New York has joined the movement by establishing a first-home savings program for its residents with the passage of A.B. 5616 on Dec. 18, 2017. These accounts provide tax benefits for individuals looking to save towards the purchase or construction of a home.
Under A.B. 5616, beginning Jan. 1, 2018, New York residents may subtract from gross income contributions to, and distributions received from, first-time home buyers’ savings accounts. The subtraction available for contributions is capped at $5,000 for single and head of household filers and $10,000 for joint filers per year. Moreover, total contributions are limited to $100,000 per account.
The funds from the account must be used for “qualified first home purchase expenses,” which include the money spent on the purchase or construction of a house, townhouse, condominium, or cooperative housing corporation within New York.
These accounts can be set up by any person or entity who wishes to save money towards the purchase or construction of a home for a designated beneficiary. However, in order to be eligible to receive the preferential tax treatment, the beneficiary must be a first-time home buyer. Under the program, a first-time home buyer is defined as a person who has never had an ownership interest in a principal residence at any time. The person must also not own any other home, including an investment or vacation home.
The program also includes a minimum residency requirement that requires beneficiaries to use the home as his or her primary residence for at least two years. If the beneficiary does not complete the two-year requirement, then the entire account is taxed and an additional 10 percent penalty is imposed. This penalty can be waived under certain circumstances, including an out-of-state work relocation or an “unforeseeable emergency.”
New York’s owner-occupied housing rate is 53.6 percent, which is 10 percent below the national average of 63.6 percent, according to U.S. Census Bureau data. Only time will tell if these accounts help increase home ownership in New York closer to the national average.
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?
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