Recently, the House passed House File 631 by a vote of 91-7. The bill establishes a new chapter in Iowa Code entitled the Iowa First-Time Homebuyer Savings Account Act and is an effort to try to incentivize young people to save and plan for the single biggest purchase of their life — their first home.
Specifically, the bill provides for the establishment of a first-time homebuyer savings account. The account holder must be a resident of Iowa. An account can be established individually or jointly with a spouse so long as both individuals are first-time homebuyers. The bill requires that the account be an interest-bearing account.
House File 631 also spells out the use and administration by the account holder. It states the account holder shall use the money for eligible costs related to the purchase of a residence within 10 years following establishment of the account and shall not contribute to the account for longer than 10 years.
There is no limitation on the amount of contributions that may be made to or retained in the account. The burden of proving that a withdrawal from an account was made for eligible costs is upon the account holder. The bill also provides that a person who knowingly prepares false statements associated with an account is guilty of a serious misdemeanor.
Additionally, the bill provides for an Iowa income tax deduction of up to $3,000/year per individual ($6,000 for married couples) for contributions to that individual’s first-time homebuyer savings account.
Amounts exceeding that limit can be carried forward for deductions in subsequent tax years (but still keeping the annual deduction limitations). No deductions can be taken after the 10 year life span of an account has expired. (Maximum deduction for an account is $30,000/$60,000).
As another tax incentive, House File 631 also provides that the income from interest and earnings on a first-time homebuyer savings account is exempt from income tax.
Finally, the bill spells out some penalties. For instance, if a withdrawal is made for a purpose other than an eligible cost, an account holder will have to add all of the tax deductions they previously took back into their taxable income.
Additionally, if a withdrawal for a purpose other than an eligible cost is made on a day other than the last business day of the calendar year — such a withdrawal shall also be assessed a penalty of 10 percent of the amount of the withdrawal.
The House continues to look for ways to encourage young people put down roots in Iowa. Buying a home is a huge purchase — one that takes careful planning and considerable saving. With the tax incentives in House File 631, House Republicans hope that more young people will make Iowa their permanent home. The bill now moves to the Senate for further consideration.