All About Michigan First-Time Buyer Savings Accounts!

Are you a Michigan renter thinking about purchasing your first home!?

We’ve got exciting news for you! Michigan’s First-Time Home Buyer Savings Program is now available to help with your goals.

What is Michigan’s First-Time Home Buyer Savings Program?

Last Year, Governor Whitmer signed into law the Michigan’s First-Time Home Buyer Savings Program.

This program is designed to help you, as a first-time homebuyer, open a dedicated savings account, benefit from state tax incentives, and use these funds towards your first home downpayment!

Who Qualifies for This Program?

Michigan residents who haven’t owned a home in the last three years – If that’s you, you qualify

How Does This Program Work?

Great question, we’d love to tell you.

You’ll need to open a brand new account with your approved bank. There are some guidelines:

Maximum Account Balance: You can accumulate up to $50,000 in your account.
The More, the Merrier: Feel free to open multiple accounts, but each must have a different beneficiary.
Tax Benefits Galore: Thanks to this new law, you can deduct contributions made between 2022 and 2026. Up to $5,000 for single returns or an impressive $10,000 for joint returns!

Here’s a quick explainer video from MSHDA

What’s Next?

Let’s go! Here’s your roadmap:

Meet with one of our Local Agents to make a homebuying plan, explore other downpayment assistance programs available to you, and connect with a lender to get downpayment numbers to save for!
Then visit any Michigan-approved financial institution and open a fresh savings, checking, or money market account.
When tax season rolls around, remember to designate your account as a first-time home buyer savings account. It’s a straightforward process! Tell your CPA/Tax Professional about this account at Tax Time!

One more tip: Keep this account separate from your other funds and use it exclusively for home-related expenses. This keeps your homeownership momentum going strong!

Preparing for Tax Time

Now, let’s discuss those tax benefits! To claim the tax benefit you will need to designate your account as a first-time home buyer savings account when you file your income tax return. You might need to provide some account statements and Form 1099-INT, but the tax perks are well worth it! (be sure to scope the FAQs section for more info)

Michigan First Time Buyer Savings Account FAQs, Answering Your Common Questions

Got questions? We’ve got answers:

Q: Can I open an account at any bank?

A: Absolutely! Any Michigan-approved financial institution works.

Q: Can I have multiple accounts?

A: Of course, but each must have a different beneficiary.

Q: What counts as an “eligible cost”?

A: Think down payment and allowable closing costs for your Michigan dream home.

Q: Can I get a tax deduction for interest earned?

A: Yes, indeed! Interest earned on your contributions is deductible.

Q: Can I withdraw funds for other purposes?

A: Certainly, but there might be a penalty unless you meet specific exceptions.

Ready to get started? Connect with one of our Michigan Offices today!

Our local agents are ready to help. Click below to connect with a Michigan office!

Additional FAQs from the Michigan.gov site:

The following questions and answers provide additional guidance on the Michigan First-Time Home Buyer Savings Program.

Q: What is the Michigan First-Time Home Buyer Savings Program?

A: The Michigan First-Time Home Buyer Savings Program was created to assist first-time home buyers with the purchase of their Michigan principal residence. Accounts created in connection with the First-Time Home Buyer Savings Program may be used for the payment or reimbursement of eligible costs for the purchase of a single-family residence in Michigan by a qualified beneficiary designated on the account.

Q: How can I open a first-time home buyer savings account?

A: An account holder may open a savings, checking, or money market account at a financial institution that the holder will later designate as a first-time home buyer account when filing a Michigan income tax return. The financial institution has no role or responsibility in designating the account as a first-time home buyer account. Rather, that designation occurs when the account holder designates the account when filing their tax return. An account designated for this purpose cannot have funds comingled with funds in other accounts nor can funds in this account be used for purposes other than the payment or reimbursement of eligible costs for the purchase of a single-family residence in Michigan by the qualified beneficiary.

Q: Who is a first-time home buyer?

A: A first-time home buyer is a Michigan resident who has not owned or purchased (individually or jointly) a single-family residence during a period of 3 years before the date of the purchase of a Michigan single-family residence.

Q: Who is an account holder?

A: An account holder is an individual who establishes, either individually or jointly with another individual with whom they file joint tax returns, an account with a financial institution for which the account holder claims a first-time home buyer savings account status on his or her income tax return.

Q: Who is a qualified beneficiary?

A: A qualified beneficiary is a first-time home buyer who is designated as the beneficiary of a first-time home buyer savings account by the account holder. The account holder may be the qualified beneficiary of the account.

Q: Which financial institutions may be used to create a first-time home buyer savings account?

A: A first-time home buyer savings account can be established at any bank, trust company, savings institution, industrial loan association, consumer finance company, credit union, benefit association, insurance company, safe deposit company, money market mutual fund, broker, or other similar entity that is authorized to do business in Michigan.

Q: May an individual be the account holder of more than one first-time home buyer savings account?

A: Yes, however, each account must have a different qualified beneficiary.

Q: May a person be the qualified beneficiary on more than one first-time home buyer savings account?

A: Yes, an individual may be designated as the qualified beneficiary on more than one first-time home buyer savings account.

Q: What expenses are “eligible costs” that may be paid or reimbursed from a First-Time Home Buyer Savings Account?

A: “Eligible costs” are the down payment and “allowable closing costs” for a Michigan single-family residence that will be the qualified beneficiary’s principal residence.

Q: What expenses qualify as “allowable closing costs?”

A: Allowable closing costs are those disbursements listed on a settlement statement for the purchase of a Michigan single-family residence by a qualified beneficiary.

Q: What is a settlement statement?

A: A settlement statement is the statement of receipts and disbursements for the purchase of a Michigan single-family residence that is a qualified beneficiary’s principal residence. An executed sales agreement for the purchase of a manufactured home being conveyed as personal property will also qualify as a settlement statement.

Q: What documentation should I submit if I am claiming a deduction, but I am not the account holder?

A: A taxpayer who is claiming a deduction and who is not the account holder for the account(s) must provide:

Account statements to show the contribution(s) they made
Account statements showing the qualified withdrawal(s), if any

Q: What documentation should I submit if I am the account holder?

A: The account holder must submit the following documentation for the first-time home buyer savings account with the their income tax return:

Account statements that show the contributions made during the tax year and the taxable interest or earnings on the account in the tax year for which the deduction is claimed
Upon withdrawal of funds from the account, a copy of the real estate settlement statement that shows the withdrawal was used for eligible costs
The Form 1099 issued by the financial institution for the account for the tax year in which the deduction is claimed.

Q: What if more than one person contributed to an account that had a qualified withdrawal during the tax year?

A: The contribution must be prorated.

The proration is equal to the actual contribution less the share of the qualified withdrawal that is equal to the qualified withdrawal multiplied by a fraction, the numerator of which is the taxpayer’s contributions to the account and denominator of which is the total of all contributions made to the account during the year. The net contribution amount cannot be less than $0.

Example: Sarah, the account holder, contributed $6,000 to a first-time home buyer account. Another taxpayer also contributed $2,000 during the tax year for a total annual contribution to the account of $8,000. A qualified withdrawal of $5,000 for an earnest money payment also occurred. To arrive at her net contribution, Sarah must determine what portion of the total withdrawal she must net against her contribution. The net contribution is calculated as follows:

$6,000 (Sarah’s contribution) / $8,000 (total contributions) = 75%

75% (0.75) x $5,000 (withdrawal) = $3,750 (Sarah’s prorated portion of the withdrawal)

$6,000 – $3,750 = $2,250 (Sarah’s net contribution)

$2,250 should be entered in the contribution box for this account.

Q: What is a Michigan single-family residence?

A: A single-family residence is a home or dwelling located in Michigan that is owned and occupied by a qualified beneficiary as that individual’s principal residence.

Q: Does a manufactured home qualify as a single-family residence?

A: Yes, a manufactured home, trailer, mobile home, condominium unit, or cooperative qualifies as a single-family residence for purposes of the Michigan First-Time Home Buyer Savings Program.

Q: What is a principal residence?

A: A principal residence is the one place where the qualified beneficiary as the owner of the property has their true, fixed, and permanent home to which, whenever the person is absent, they intend to return.

Q: Are contributions to a first-time home buyer account tax deductible?

A: Yes, contributions made by a taxpayer to first-time home buyer account during the tax year may qualify for a deduction from Michigan taxable income to the extent they were not deducted in determining adjusted gross income (AGI). However, the contributions must be netted against qualified withdrawals made in the same year for a total deduction up to $5,000 on a single or married filing separate return or $10,000 on a jointly filed return.

Q: Is interest earned on a first-time home buyer savings account deductible?

A: Yes, to the extent not deducted in determining AGI, interest earned in the tax year on an account is deductible. The account holder must submit with their MI-1040 income tax return account statements showing contributions and withdrawals made during that tax year, taxable interest or earnings on the account, and the Form 1099 issued by the financial institution for the account.

Q: For what tax years may deductions be taken for contributions to first-time home buyer savings accounts?

A: Deductions for contributions by the account holder to first-time home buyer savings accounts may be taken for tax years that begin on or after January 1, 2022, and through December 31, 2026.

Q: Is there an income tax form that must be filed for a first-time home buyer savings account?

A: Yes, a Michigan First-Time Home Buyer Savings Account income tax form must be completed and filed with the taxpayer’s MI-1040. Form 5792, Michigan First-Time Home Buyer Savings Program, requires the account holder’s name, the name of the qualified beneficiary, the name of the financial institution and account number, the beginning and year-end balance of the account, and the amount of the deduction claimed for that tax year.

Q: What records should be retained?

A: Claimants of the first-time home buyer deduction should retain records that document the establishment of the account and all activities and transactions relating to the account, including account statements for all contributions into and withdrawals from the account, a detailed list describing the purpose of transactions for the account, payments made to or on behalf of the qualified beneficiary of the account, and any other records and papers related to the account.

Q: Does a financial institution have any responsibilities connected to first-time home buyer savings accounts?

A: No, the financial institution is not responsible or liable for any of the following: (i) designating an account as a first-time home buyer savings account, (ii) designating the qualified beneficiaries, (iii) tracking the use of money withdrawn, (iv) allocating funds among joint account holders or multiple qualified beneficiaries, (v) determining or ensuring that the account meets the requirements to be a first-time home buyer savings account, (vi) reporting or remitting taxes or penalties related to the use of the first-time home buyer savings account, or (vii) reporting any information to the Department of Treasury that is not otherwise required by law.

Q: Can I withdraw funds from one first-time home buyer savings account and deposit them into another account?

A: Yes, an account holder may withdraw funds, in whole or in part, from a first-time home buyer savings account and deposit the funds in a new first-time home buyer savings account established in the same or different financial institution for another qualified beneficiary.

Q: What happens to the funds in a first-time home buyer account when the account holder dies?

A: A financial institution must distribute the principal and accumulated interest or other income in the account according to the terms of the contract governing the account when proof of death of the account holder is furnished.

Q: Is there a maximum account balance for a first-time home buyer savings account?

A: Yes, there is a maximum account balance of $50,000, and no more contributions may be made into a first-time home buyer savings account once it reaches the maximum account balance of $50,000. However, accounts may continue to accrue interest if the total balance has reached the maximum account balance.

Q: Are there expenses that first-time home buyer saving account funds cannot be used for?

A: Yes, funds in a first-time home buyer savings account may not be commingled with funds that would be used for purposes other than to pay or reimburse for eligible costs associated with the purchase of a single-family residence. In other words, account funds may not be held in a first-time home buyer savings account and withdrawn and used for any purpose other than to pay or reimburse for “eligible costs,” i.e., a down payment and “allowable closing costs.”

Q: Is there a penalty for withdrawing funds from a first-time home buyer savings account and using those funds for purposes other than to pay or reimburse “eligible costs” associated with this program?

A: Yes, funds withdrawn from an account for any purpose other than the payment of eligible costs by or on behalf of a qualified beneficiary are subject to a penalty equal to 10% of the amount withdrawn unless certain narrow exceptions apply.

Q: Under what circumstances will a withdrawal for purposes other than to pay or reimburse for eligible costs not be subject to penalty?

A: A penalty will not apply in the following circumstances:

Where the funds are withdrawn due to the death or disability of the qualified beneficiary.
Where the assets of the account are dispersed due to a bankruptcy.
Where funds are transferred from one first-time home buyer savings account to another first-time home buyer savings account for the benefit of another qualified beneficiary.
Where the withdrawal is due to a demonstrated immediate, financial hardship.
Where the withdrawal is made due to the transfer or deployment out of Michigan of the qualified beneficiary who is either a member of the armed forces, a reserve branch of the armed forces, or the Michigan National Guard on active duty and where that service member provides acceptable proof of transfer or deployment to the Department of Treasury.

Q: What types of contributions can be made to a first-time home buyer savings account?

A: Cash and marketable securities may be contributed to a first-time home buyer savings account. Marketable securities are assets that can be liquidated quickly and converted to cash at a reasonable price, for example, common or preferred stock, bonds, or Treasury bills. Earnings derived from these marketable securities, such as dividends or gains from the sale of marketable securities are not exempt and are subject to Michigan income tax.