First-Time Homebuyers Savings Account

For the FTHSA program, a first-time homebuyer is defined as an individual who is a resident of Iowa and who does not own, either individually or jointly, a single-family or multi-family residence for a period of three years prior to: (1) the date on which the individual is named as a designated beneficiary of a FTHSA and (2) the date of the qualified home purchase for which the eligible home costs are paid or reimbursed from a FTHSA.

Each year, account holders may contribute an unlimited amount of money into their FTHSA account. However, the amount of such contributions that a taxpayer may deduct from their Iowa adjusted gross income for tax purposes is limited. The maximum annual deduction is adjusted each year for inflation. It is also differs depending on filing status. Taxpayers may deduct contributions to an FTHSA up to the amounts shown in the table below. For married taxpayers filing a joint return, the limit applies if the FTHSA account was opened and maintained as a joint account. Taxpayers may receive a lifetime benefit of ten (10) times the beneficiary’s annual deduction limit, based on the limit in effect in the year the taxpayer opened the account. Annual deduction limits by tax year and filing status are provided in the table below.

Taxpayers may establish multiple accounts as long as each account has different designated beneficiaries. However, the annual and lifetime deduction limits apply to each account holder, not to each account. A taxpayer may be both the account holder and the beneficiary of the same account and an individual can be the designated beneficiary of more than one account. The account must be set-up with an Iowa financial institution. The contributions are required to be in the account for 90 days prior to being used. Any money remaining in the account more than 10 years after the account was opened is considered withdrawn, and the account can no longer be a first-time homebuyer savings account after that time.

Taxpayers who set up a FTHSA are responsible for:

1. Designating a beneficiary of the account by submitting an Account Holder and Designated Beneficiary Form (41-162).
   Note: each account may only have one designated beneficiary.
2. Ensuring the beneficiary's eligibility as a first-time homebuyer.
3. Ensuring that the funds are withdrawn in connection with a qualified home purchase.
4. Keeping receipts and records to support the account's contributions and distributions.
5. Submitting the form by the established due date.
   Note: this form may be submitted at any time after the account was opened, but must be submitted no later than the due date for filing and the individual income tax return (April 30), of the year immediately following the calendar year in which the account was opened, including extensions, in order for the account to qualify as a first-time homebuyer savings account.

Taxpayers also have the following responsibilities with regard to filing:

• Complete an Iowa Department of Revenue Annual Report (41-164)  and include it with their Iowa income tax return.
• Submit a copy of IRS form 1099, if provided, with their Iowa income tax return.
• Complete and send a Withdrawal Form (41-163) to the Iowa Department of Revenue when money is withdrawn. Note: this form must be submitted to the department within ninety (90) days of the date of any withdrawal of funds in any amount from the first-time homebuyer savings account.

The account can be used for a down payment and closing costs for a principal single-family residence in Iowa. If the money in an account is withdrawn for a nonqualified reason, or if the money is not used to purchase a home within 10 years of the time the account was first opened,  any money that was previously deducted but was not used for a qualifying purchase, plus 10%, is added to the account holder’s taxable income for income tax purposes. The 10% penalty does not apply if the withdrawal is due to the death of the account holder or due to a garnishment, levy, or order.