Missouri Passes First-Time Home Buyer Deduction

Beginning January 1, 2019, Missouri allows residents to:

  • open first-time, home buyer savings accounts; and
  • deduct contributions to the accounts on their income tax returns.

The deduction provisions expire on December 31, 2024, unless reauthorized.

First-Time Home Buyer

An account holder must designate a first-time home buyer as the qualified beneficiary of the account. The account holder must make the designation by April 15 of the year following creation of the account.

A “first-time home buyer” is:

  • an individual who has never owned a single-family, owner-occupied primary residence; or
  • a divorced individual not listed on a property title for at least three years.

The account holder may designate himself or herself as the beneficiary. The account holder may change the designated beneficiary at any time. But no account may have more than one designated beneficiary at any time. Also, no account holder may have multiple accounts with the same designated beneficiary. Otherwise, an individual may be the designated beneficiary of multiple accounts.

Deduction Amount Capped

Taxpayers may deduct 50% of their contributions to the home buyer savings account for a tax year, with a maximum annual deduction of:

  • $800 for individuals; and
  • $1600 for married couples filing a joint return.

The deduction cannot exceed the taxpayer’s Missouri adjusted gross income for the tax year.

Exemption for Account Earnings

Income earned on a home buyer savings account is exempt from taxation. Taxpayers will lose the exemption if they withdraw money from an account and:

  • made their first deposit into the account less than a year earlier; or
  • use the money for ineligible expenses.

Also, the exemption will not apply to income earned on the account when:

  • the amount of all contributions to the account for all tax years exceeds $20,000; or
  • the total amount in the account exceeds $30,000.

Tax Eligible Withdrawals

For purposes of the tax benefits, eligible expenses include:

  • expenses to buy a primary residence in Missouri;
  • expenses to buy a primary residence outside Missouri for an active-duty military person stationed in Missouri any time after account creation;
  • expenses that would have qualified under one of the above provisions, except that the contract for the purchase did not close;
  • transfer to another newly created first-time home buyer savings account; and
  • service fees on the account.

Recapture and Penalty

Income withdrawn and used for ineligible expenses is added to Missouri adjusted gross income and generally subject to a penalty. The penalty is:

  • 5% of the recaptured amount for withdrawals made 10 or fewer years after the first deposit into the account; and
  • 10% of the recaptured amount for withdrawals made more than 10 years after the first deposit into the account.

No penalty will apply if the withdrawal is:

  • used for a beneficiary’s purchase of a primary residence outside Missouri; or
  • from an account for which the beneficiary died.

If a beneficiary dies, a penalty will not apply if the account holder designates a new beneficiary during the same tax year.

H.B. 1796, Laws 2018, applicable as noted

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AUTHOR

CCHTaxGroup

All stories by: CCHTaxGroup