Colorado’s First-Time Homebuyers Savings Account

Big win for consumers and REALTORS®! Colorado’s First-Time Homebuyers Savings Account was recently signed by Governor Hickenlooper.  The bill was backed by Colorado REALTORS® and is the model for the legislation introduced today at the federal level by US Representative, Mike Coffman (R-CO).

June 30, 2016

The act would amend the federal tax code to create 529-style savings accounts for first time homebuyers. The goal is to take the highly successful 529 plan model, which provides parents a tax-advantaged means to save for their children’s college education, and apply it to another area where savings are equally important: buying a first home.

"The American dream of home ownership is getting harder and harder to attain for those starting out on their own because of the challenges involved in saving up for the down payment. The First-Time Homebuyer Savings Account Act is a straightforward and bipartisan solution to this problem." - U.S. Representative Mike Coffman 

Coffman’s Congressional district, Colorado’s 6th, is an example of the difficulties young people currently face saving for a down payment.  According to the Joint Center for Housing Studies at Harvard University, the 6th Congressional district is rated as in a ‘renters’ crisis, meaning that half of all renters in the district spend at least 30% of their income on rent. In fact the situation in the district is arguably even more serious because 25.9% of renters in the 6th district spend half of their income on housing. With such high rents, saving for a down payment just can seem impossible. This is a factor in why, according to the Commerce Department, in the second quarter of 2015, homeownership rates hit its lowest level since 1967.

Coffman’s introduced this bill as part of his ongoing efforts to help first-time homebuyers. Earlier this year, Coffman introduced another bipartisan bill with Maloney, which allows first-time homebuyers to draw some money from their IRA accounts for a down payment. Seeking additional ideas to help homebuyers, Coffman saw the Colorado legislature pass its version of the First-Time Homebuyer Saving Account Actwhich was signed into law in Colorado earlier this month, and is similar to laws enacted in Virginia and Montana. Seeing another good idea to encourage home ownership, Coffman decided to introduce the bill at the federal level because state laws can only provide for tax-advantaged savings from state taxes, and federal tax rates are much higher.

How does it work? 

The bill will allow individuals to deposit up to $14,000 per year and married couples filing jointly up to double that amount per year, after taxes, into a first-time homebuyer account with a maximum lifetime investment of $50,000. The investment can grow up to $150,000 tax-free and there is no time limit on how long the funds may remain in the account. All limits are adjustable for inflation. The account is only available for use to make the down payment and pay the other fees and costs associated with the purchase of a first home.

The designee of the account can be the account holder or any designated beneficiary and can be modified at any time. Additionally, the bill includes a provision that allows divorcees who were previous co-owners on a principal residence, to use the funds in a first-time homebuyer savings account after a three-year waiting period. 

"Potential homebuyers are up against a lot when trying to save for a down payment. Many already face a significant debt burden, and with home prices on the rise, people need every opportunity to put aside a little extra money. Creating a tax free First-Time Homebuyer Account is a smart approach to empowering more potential buyers with the tools to overcome those challenges and achieve the dream of homeownership. The National Association of Realtors® supports this legislation and thanks Congressman Mike Coffman for introducing it in the House of Representatives".- National Association of Realtors® President Tom Salomone