In 2021, Maryland REALTORS® achieved a big win by passing a law called HB 1178. This law created the First-Time Homebuyer Savings Account. However, not many people have heard about them since then. There were some conditions that needed to be met before these accounts could be used, like following certain steps and making sure lenders give all the necessary information. Also, the department of housing government  didn’t have enough funds to make it happen quickly. But now, they’re working on changing that.

What is a First-Time Homebuyer Savings Account?

It’s a special account that helps people save money to buy their first home. The good thing about these accounts is that the government gives you certain tax benefits on the money you put into the account and the money it earns.

Who can use these accounts?

To qualify, you must be a resident of Maryland and you shouldn’t have owned a home in the past 7 years. You need to open the account in your own name, but if you’re buying a house with someone else who is also a first-time buyer, you can open a joint account. Other family members or friends can’t open the account for you, but they can give you money to put into your account. However, only you can get a tax deduction for the money you put in.

What can you do with the money in the account?

You can use it to pay for the down payment (the initial payment you make when buying a house) and the closing costs (other fees you have to pay when finalizing the purchase). But remember, if you take the money out of the account for something else, you’ll have to pay taxes on it and also a penalty of 10% of the amount you withdraw.

There’s a time limit too. You have 15 years from the time you open the account to use the money for buying a house. If you don’t use it within that time, you’ll have to pay taxes on the remaining money as regular income.

Where can you open one of these accounts?

Some banks have special accounts for first-time homebuyers, but you can open the account at any bank as long as it’s for the purpose of buying a house in Maryland.

What do bank need to know?

If a bank promotes these accounts, they need to give you some information about housing counseling. You can find that information on the website of the Department of Housing and Community Development which can be found here: www.dhcd.maryland.gov

How to Claim the Tax Exemption

For up to 10 years, an account holder can claim a state tax subtraction for up to $5,000. The First-Time Homebuyer Savings Account Subtraction can be claimed on Form 502SU, line “ww.” You can claim up to $5,000 per year for a maximum of 10 years. You have to keep a record of all the transactions you make with the account and include it with your tax return every year until you use the money for buying a house. The Office of the Comptroller has more detailed information about taxes and these accounts on their website. here: marylandtaxes.gov

What’s happening next?

The government needs to do more to let people know about these accounts, especially in areas where not many people own homes. They’re talking to organizations like Maryland REALTORS® and the Maryland Mortgage Bankers and Brokers Association to figure out how to spread the word to not just homebuyers, but also mortgage lenders, banks, and tax advisors.

So, let’s help Maryland’s future homebuyers by telling them about First-Time Homebuyer Savings Accounts