Iowa First Time Homebuyers
By Rob Poterucha, CPA
The Iowa first time homebuyer savings account is a deduction that most people are not familiar with, but can be very beneficial you or someone you know buying their first home. Today, Rob Poterucha explains this savings account deduction, who can use it, and how it will benefit you or loved ones.
Rob Poterucha, CPA | Supervisor
see vlog transcription below:
My name is Rob Poterucha, and I’m a tax supervisor at McGowen Hurst Clark Smith, a full-service CPA firm with offices in West Des Moines and Winterset, Iowa.
Today, we’re going to be discussing something you may not have heard before: the Iowa first time homebuyer savings account deduction. I know that’s a mouthful so let’s just call it the savings account deduction from here on out. This is something that is kind of similar to the Iowa 529 plan deduction in which you get a tax deduction on your Iowa return for a certain activity. For the 529 plan, it’s for educational expenses – primary, secondary, or college expenses. For the savings account deduction, it’s for your first home purchase. Your “first” home purchase means you can’t have owned a home for the past three years, and the home has to be located in Iowa. Another similarity to the 529 plan is that you can put money in for anyone – yourself, your kids, your neighbor, etc. and still receive the deduction.
There are a couple requirements that you have to meet in order to take the deduction. First, the bank account has to be designated as a first-time home buyer savings account. Not all banks will have this so it’s important to understand that. For example, I did this personally and used First National Bank in Des Moines. Second, you need to send in a couple forms to the Iowa Department of Revenue which can be found on the DOR’s website. Finally, the account cannot be open more than 10 years. In the 10th year, a home has to be purchased or the deductions will have to be recaptured as income.
Now that we’ve discussed the requirements, what are the benefits of the deduction? First, you get a tax deduction. For 2019, it’s 2,050 for single filers or 4,100 for married filers. This means you can deduct up to 4,100 on your Iowa tax return, saving you between 250-370 of tax. Another benefit is the interest on this account is tax exempt in Iowa saving you a little more money.
This is a great vehicle to save some tax dollars if you or someone you know is going to purchase a home in Iowa in the near future. Grandparents or parents who put money into a 529 plan should consider the savings account deduction if they have a little extra cash around as it’s a great way to put money aside for a down payment and receive some tax benefits.
If you have any questions about the Iowa first time homebuyer savings account deduction, feel free to reach out to us at MHCS. Also, please subscribe to our various social media channels. See you next time.