Helping First-time Homebuyers

Making the American Dream of Home Ownership a Reality in Colorado

Home affordability in Colorado, and especially in Metro Denver, is declining. Coupled with the Consumer Financial Protection Bureau’s (CFPB) desire to implement rules such as QM (Qualified Mortgage), which could make financing more difficult to obtain, we have an environment that demands a policy solution. Accounts that help save for a down payment and closing costs, as well as any expenses commonly included for a first-time Colorado home purchase, is that solution.

About the Bill

• Parents, grandparents, young couples, etc. are able to designate a new or existing account as their “First-Time Homebuyer Savings Account.”

• Up to $50,000 of “after tax dollars” may be deposited or transferred from another account. The account grows just like any other account, however the growth on the funds are not taxed as income by the Department of Revenue if the funds are used for qualified expenses. Federal taxes are still due. The growth on the funds will be capped at $150,000.

• The Department of Revenue is required to establish a form that an account holder must complete and file with his or her state income tax return. Unqualified purchases will be assessed a penalty as well as tax recapture.

• There is a caveat for active-duty military that may be transferred and purchase a home outside the state.

• Financial institutions (banks, credit unions, investment firms, etc.) are not required to do anything to administer these accounts. The only required action for financial institutions is sending the 1099 at the end of the year, which is what they do on any account. The legislation makes it clear there are no additional regulatory or legal responsibilities on a financial institution.

• Similar to 529 College Savings Plans, recently multiple states have created first-time homebuyer savings accounts. States recognize the social benefits of citizens owning their first home, beginning to plant roots in a community, and becoming active and contributing members of their communities.