On February 9th, 2022, Governor Gretchen Whitmer signed the Michigan First-Time Home Buyer Savings Account Program (FHSA) into law. The FHSA allows first-time home buyers to receive Michigan state tax savings on contributions made into the account, as well as state tax-free growth on any investments and interest, as long as the funds are used only for allowable closing costs for a single-family residence in Michigan. Single filers can receive up to $5,000 annual Michigan state tax savings, while joint filers can save up to $10,000 on annual Michigan state taxes until the 2026 tax year. A qualified first-time home buyer is a person who has not owned a primary residence in the past 3 years, and allowable closing costs are any closing and settlement costs.
For FHSA accounts, the beneficiary must be the person who qualifies as a first-time homebuyer. Therefore, if you are a parent that wants to save money for your child’s future home purchase, you may be the owner of the account with your child as the beneficiary. The account has a maximum balance of $50,000. Once the FHSA hits a $50,000 balance, no more contributions can be made, but interest and dividends can still accumulate above $50,000.
Be aware that because these accounts are brand new, it may take some time for financial institutions to figure out how to set them up. According to the rules, you can create an FHSA account by going to any bank or institution and opening an account. You will need to file Form 5792 along with supporting account documentation to certify that account as a First-Time Home Buyer Savings Account. You will have to file Form 5792 along with supporting documentation annually to ensure that you are using the account for its intended purpose. This savings account cannot have funds that are commingled with other funds, and no withdrawals can be made except for eligible safe-harbor withdrawals, such as the beneficiary’s death or disability. Any withdrawals that do not count as a safe-harbor withdrawal are subject to state taxes and an additional 10% penalty of the amount withdrawn.
How can a Michigan First-Time Home Buyer Savings Account be useful?
If you are a parent who wants to help save for your child’s home down payment, a First-Time Home Buyer Savings Account could be a good part of your financial plan. Keep in mind, however, that this incentive is for Michigan state taxes only, so federal taxes still apply, and any amount given to your child will be subject to the laws, which is $17,000 for 2023. You would also need to be confident that your child will use the funds to purchase a home in Michigan.
Aside from that, if you are currently renting and are saving for a home you want to buy in the next 1-3 years, keeping those funds in a separate account and taking advantage of the state tax deductions could be useful to you. For example, if you were saving for the next 3 years before purchasing a home as a single tax filer, although $42.50 per $1,000 of savings is not huge, it would make sense to take advantage of this incentive. Simply keep in mind that before certifying the account as a First-Time Home Buyer Savings Account, make sure you want to use those funds towards a home in Michigan.
If you would like to learn more about the Michigan First Time Home Buyer Savings Account, you can listen to our podcast episode where Nick and Ashley discussed the details of this incentive.
You can also read the details and Q&A on the Michigan.gov webpage.
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