Ohio Senator Wants Tax-Free Savings Accounts for First-Time Home Buyers

 

An Ohio senator wants to create a tax-free program to help first-time home buyers save for down payments.

Sen. Theresa Gavarone (R-2) says her Senate Bill 139 would allow first-time homeowners to create a tax-free savings account. Under the terms of the bill, individuals who create such an account will be able to deduct contributions and interest on the account.

“If we can encourage people to save money to buy a home here in Ohio, then I think that is something that will benefit everyone.” she said.

Gavarone said it’s difficult for many in the millennial generation (born 1981-1996) to save money for their first home.

“The share of first-time home buyers is lower than it was for previous generations,” she explained. “Student loan debt and rent incomes are up. The average age of a home buyer has risen – it was in the mid-20s and it’s now mid-30s.”

She also said that more than eight out of 10 millennial renters have saved less than $10,000 for a down payment, and nearly half haven’t saved anything at all.

The program would give the tax deduction for any deposits made to a first-time home buyer savings account.

Anyone can open the account and designate the first-time home buyer (themselves or another person) as the account’s beneficiary. This means that parents, for example, could open the account with their first-time home owner child as the beneficiary.

Then, deposits and interest on the account are tax deductible for the account owner, so long as they don’t exceed the limits. The money must be used to make a down payment or pay the closing costs on a single family home, a unit in a multiple-unit building, or a manufactured or mobile home.

A first-time home owner is defined as an Ohio resident who has not owned or purchased a single-family home in the three years prior to taking the money out of the account to buy a single-family home.

The maximum deductible amount each year is $5,000 for a single person and $10,000 for a couple filing jointly. The total amount of the deductions cannot exceed $50,000, or $100,000 if filing jointly.

Anyone can contribute to the account, Gavarone said, and there are no limits on the amount of contributions. The only limits are on the amount of the tax deductions.

She explained that the person who gets the deduction is the account holder, but the beneficiary is the only one who can use the funds.

If, for some reason, the money in the account is used for something other than for a first-time home, the account holder must pay back all deductions and may owe an additional 10 percent penalty. This also applies if there is any money left in the account after 15 years.

Gavarone said they held “interested party” meetings. “We brought people together and addressed any concerns before we introduced the legislation,” she said.

Those meetings resulted in support from the Ohio Realtors, Ohio Mortgage Bankers Association, Ohio Bankers League, Ohio Credit Union League, and the Ohio Manufactured Homes Association.

Anjanette Frye, state president of the Ohio Realtors, testified in committee hearings on the bill. She said the “dream of home ownership has been quietly fading away” and that “one of the most significant barriers to home ownership is a down payment.”

She also explained why the savings account monies can only be used to buy a home in Ohio.

“In 2018, Ohio ranked sixth in the nation for most moved from states,” Frye said. “It is important to keep talent – young and old – in our great state. We certainly do not want to incentivize our talent to move to another state and grow their economy through home ownership, when we need people to continue to live, work and play right here in Ohio.”

Gavarone is not aware of any opposition to the measure and expects a vote by the Senate’s Ways and Means Committee when members return from the summer recess in September.

“If we can get it passed, hopefully, we’ll have it eligible for deductions in the 2020 tax year,” she said.

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Maggie Leigh Thurber is a writer for The Ohio Star. Email tips to [email protected].

 

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