AAR Works To Extend Benefit for First-Time Homebuyers
February 22, 2022
First-time homebuyers faced challenges over the past two years as the pandemic-hampered economy stalled down payment savings and fueled unusual market forces. With rising market prices, multiple and above-list offers, and low inventory, some new buyers found themselves on the sidelines struggling to meet their financial goals for a new home. Since its inception in 2019, the Alabama First-Time Homebuyer Savings Account (FHSA) has offered a unique opportunity for first-time and second-chance (those who haven’t owned a home for at least 10 years) buyers to save for their first home and enjoy a state tax break on the money they save and the interest it earns. Set to expire on December 31, 2023, time is running out for participants to save. In response, Alabama REALTORS® is working to win legislative approval for a five-year extension of the plan.
State Representative Kyle South (R-Fayette) sponsored House Bill 171, which would extend the FHSA program to December 31, 2028. The bill passed out of the House Ways and Means-Education Committee last Wednesday and can now be considered by the full House.
South also sponsored the bill that created the FHSA program that began in 2019. Here’s how the FHSA program works:
- To qualify, an individual or couple must be a first-time homebuyer or have not owned a home in the last 10 years.
- Individuals or couples may open an FHSA account at any participating Alabama bank, credit union, or financial institution.
- Deposits made to the account reduce the participant’s gross income for state taxes and the interest earned is not taxed.
- Individuals may deduct from their gross income up to $5,000 per year for their FHSA and couples may deduct up to $10,000 per year.
- Only the amount eligible for tax deductions is limited – the amount deposited is not.
- To be tax-free, money deposited in the account can only be used for a down payment or to pay other expenses listed on a home purchase closing statement.
- Eligible single-family homes also include a manufactured home, trailer, mobile home, condominium unit, or cooperative.
- To use the FHSA funds, simply withdraw them and spend them on eligible home buying expenses.
- Send a detailed account of how funds were spent and a statement of any funds remaining in the FHSA account to the Alabama Department of Revenue.
- Funds not used for eligible home purchase expenses must be reported as taxable income.
- The FHSA can currently remain open for five years. House Bill 171 would extend that limit to a total of 10 years (until December 31, 2028). After that, any unspent funds will be counted toward the account holder’s taxable state income.
Alabama REALTORS® CEO Jeremy Walker underscored the need for the FHSA program’s extension. “In a time when housing prices continue to rise and the dream of homeownership becomes even further out of reach for many first-time buyers, the First-Time and Second Chance Home Buyers Savings Account Act will swiftly and effectively provide much-needed relief to Alabamians working to enjoy the benefits of homeownership during this housing affordability crisis,” explained Walker. “It is crucial in today’s market, with few houses and skyrocketing costs, to give additional time for Alabamians to save.”