What is the FHBSA? The FHBSA is a program that helps first-time homebuyers save enough money to purchase a home. The FHBSA is a savings account that may be opened at any financial institution that grows free from Wisconsin taxes. In other words, the interest and any capital gains earned on the account are not subject to state taxes.
- Interest and capital gains on savings grow tax-free: All interest and capital gains on savings deposited into the FHBSA grows tax free, state tax only, until the money is withdrawn to purchase a home. This means that homebuyers who deposit money into an FHBSA will not have to pay a Wisconsin capital gains tax when withdrawing the money to purchase a home.
- Deduction for contributions: Prospective homebuyers who deposit money into an FHBSA will be allowed to deduct up to $5,000, or $10,000 if filing a joint income tax return, per year up to a maximum of $50,000 over the lifetime of the account. Anyone can contribute to the FHBSA, but only contributions made by the prospective homebuyer(s) are eligible for the deduction.
- Withdrawals are not taxed: An FHBSA provides a unique savings opportunity for homebuyers because both the contribution and the gains and interest earned on the contribution can be withdrawn tax-free. This makes the FHBSA different than both a traditional IRA and a Roth IRA, which both allow withdrawals for first-time home purchases. Withdrawals from both traditional IRAs and Roth IRAs for a first-time home purchase are limited to $10,000 in total. In addition, distributions from traditional IRAs are taxed as ordinary income, while withdrawals from Roth IRAs are taxed as income if they are withdrawn prior to being in the account for five years.
Which other states have programs similar to the FHBSA program? At least nine states across the country have enacted FHBSA programs, recognizing the positive impact of homebuying on state and local economies. These states include Alabama, Colorado, Iowa, Minnesota, Mississippi, Missouri, Montana, Oregon and Virginia.