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First Time Home Buyer Savings Account

As the American dream of homeownership is getting further away from many Americans due to the lack of affordable housing, the ‘First-Time Home Buyer Savings Account’ Act, seeks to help those trying to buy their first home.

Effective 01/01/2017, Colorado House Bill 16-1467 amended the federal tax code to create “529-style” investment / savings accounts for first time homebuyers.

The goal takes the highly successful 529 plan model, which provides parents a tax-advantaged means to save for their children’s college education and apply it to another area where savings are equally important: buying a first home.

The First-Time Home Buyer Savings Account Act:

  • Creates a 529-style account for first-time home buyers.
  • Individuals can invest / deposit up to $14,000 per year into a first-time home buyer account ($28,000 if married filing jointly) with a lifetime investment amount of $50,000.
  • The investment can grow tax-free up to $150,000
  • The account may be used to make the down payment and pay other fees and costs associated with the purchase of a first home, including:
    • Appraisal Costs
    • Mortgage Origination Fees
    • Inspection Fees
  • There is no time limit on how long funds may remain in the account.
  • The designee of the account can be the account holder, a child, a grandchild, a spouse, etc. and can be modified during the life of the account.
  • If funds are withdrawn for anything other than the above, you will owe taxes on the untaxed earnings (capital gains, dividends) plus a 5% penalty on the account.

In addition, Colorado H.R. 2808 complimented this bill by increasing the amount that may be withdrawn, without penalty, from a retirement plan for purposes of assisting a first-time homebuyer in purchasing a principal residence from $10,000 to $25,000. This applies to Colorado taxes only. Federal Taxes are still limited to $10,000.

Who qualifies as a “First Time Home Buyer”?

  • An individual who has never owned or purchased, under contract or deed, either individually or jointly:
    • a single-family, owner occupied residence
    • a condominium
    • a manufactured or mobile home that is assessed and taxed as real property
  • As a result of a divorce, has not been listed on a property title for at least 3 consecutive years.

How to take advantage of this:

  1. Open a non-qualified investment account or savings account, designated as a First Time Home Buyers account.
  2. Contribute up to $14,000 ($28,000 if filing jointly) annually to the account. This can be:
    • a. Monthly contributions
    • b. Lump-sum contribution(s)
  3. When filing your annual Colorado State Taxes (Form DR 0104), include form – First Time Home Buyers Subtraction (DR 0350). This excludes the interest and/or earnings from your Colorado taxes.
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