Alabama First-Time Homebuyer Tax Benefit Extended

Alabama First-Time Homebuyer Tax Benefit Extended

Alabama Governor Kay Ivey recently signed into law the Alabama Association of REALTORS® bill to renew the Alabama First-Time Homebuyers Savings Account (FHSA) program for an additional five years.  The FHSA, which also is available to “second chance” homebuyers who haven’t owned a home for at least 10 years, provides a state tax break as qualified buyers save for a down payment and eligible closing costs.


On hand for the April 20 ceremonial bill signing for Alabama REALTORS® were President Wes Grant, Public Policy Committee Chair RaJane Hampton, CEO Jeremy Walker and Associate Counsel Katie Richard.  The bill, HB171, was sponsored by Representative Kyle South (R-Fayette), who also sponsored the bill creating the program that began in 2019.  Senator Sam Givhan (R-Huntsville) handled the bill in the Senate.

“The FHSA has been the catalyst for many first-time homebuyers looking to attain part of the American dream – homeownership,” said Grant.  “It’s a huge incentive for individuals and families to save toward a home and then reinvest their tax savings.  It’s a win-win.” During the program’s first year, according to the Alabama Department of Revenue, 874 state tax returns reflected the deduction totaling nearly $3.5 million. 


In 2020, 901 returns had FHSA deductions totaling $3.6 million. Alabama is one of at least 14 states with savings account programs for first-time homebuyers.

“The pandemic had a chilling effect on homebuyers’ ability to save,” explained Hampton.  In her role as Public Policy Committee Chair, she said the committee saw a need to allow savers additional time to contribute to their accounts but without increasing the total allowable deductions.  “The pandemic also spawned some unusual market forces like low inventory, high demand, multiple offers and above-listing-price offers that added to the challenges of becoming a first-time or second-chance home buyer,” said Hampton.  To help buyers overcome those hurdles, the bill extended the time for savings to accrue and be spent from five years to 10 years from the date the account is opened.


The basics of the FHSA program remain the same:

  • Accounts at participating Alabama financial institutions may be opened by any first-time homebuyer (individual or couple) or anyone who has not owned a home for at least 10 years.
  • Deposits reduce the participant’s gross income for state taxes and the interest earned is not taxed.
  • Annual deduction limits are $5,000 for individuals and $10,000 for couples filing jointly.
  • The total of principal and earnings is limited to $25,000 for individuals and $50,000 for couples filing jointly.
  • Only the deductible amount is limited.  The amount deposited is not.
  • To be tax free, money in the account must be used for a down payment or other closing expenses listed on a closing statement.
  • Traditional single-family homes qualify as well as manufactured homes, trailers, condominium units or cooperatives.
  • After spending the funds, the account holder sends a detailed account of funds spend and a statement of any remaining balance in the FHSA account to the Alabama Department of Revenue.
  • Unused funds or those used for ineligible expenses must be reported as taxable income.

Alabama REALTORS® appreciates the efforts of Representative South, Representative Mike Jones (R-Andalusia), Senator Givhan and Senator Jabo Waggoner (R- Vestavia) for ensuring HB171 achieved final passage in a packed election-year session, and Gov. Ivey for signing the bill.  Association members, who responded to a legislative call to action, were critical in giving this important homebuyer benefit an additional five-year span.  “Our  member outreach was very important ,” said Walker.  “Competition for bills to get final passage is incredibly strong during the final weeks of the session.  Hearing from our local members from every corner of the state made  all the difference.”