A savings account for qualifying homebuyers that offers tax savings on the deposits and interest earned.  

First-time or second-chance homebuyers (i.e., any Alabamian who has not owned or purchased, either individually or jointly, a single-family residence during a period of 10 years prior to the date of the purchase of a single-family residence).  

Any bank, savings institution, industrial loan association, credit union, or other similar entity authorized to do business and accept deposits in Alabama.

Today. The First-time and Second-Chance Homebuyer Act was effective January 1, 2019.  An individual must open a first-time/second-chance homebuyer savings account between January 1, 2019 and December 31, 2028.

If you are a qualifying homebuyer, the deposits and interest earned will help you make the purchase. Deposits reduce your income from state income taxes and interest earned is tax free.

Individuals can deduct up to $5,000 per year from their state gross income for deposits into a First-time/Second-Chance Homebuyer Savings Account. Couples can deduct up to $10,000 per year. It’s a dollar-for-dollar deduction up to the threshold (i.e. an account holder who deposits $10 into a savings account can deduct $10 from his or her state gross income; joint account holders who deposit $10,500 can deduct $10,000).

Ten years, after which time any account funds not spent on qualifying costs will be included in the account holder’s taxable income.

No. Deposits are not limited. There are, however, limitations on income tax deductions from the deposits. Income tax deductions for individuals are limited to $5,000 per year for a total of $25,000 over ten years, and joint savings account holders who file taxes jointly can deduct up to $10,000 per year for a total of $50,000 over ten years. For example, you can deposit $100,000 in the account over the ten-year period but can only deduct $25,000 or $50,000 depending on your tax filing status.

Yes. While deposits are not limited, the income tax deductions are.

The down payment and disbursements listed on the settlement statement for the purchase of a home in Alabama.

The down payment and disbursements listed on the settlement statement for the purchase of a home in Alabama.

Single-family residences in Alabama, including a manufactured home, trailer, mobile home, condominium unit, or cooperative.

No. A First-time/Second-Chance Homebuyer Savings Account must be a new, separate account specifically designated as First-Time/Second-Chance Homebuyer Savings Account to be used solely for the purchase of your first home.

Not if you are a first-time or second-chance homebuyer and use the money toward the down payment and/or settlement costs of a home purchase in Alabama.

Unless the full amount withdrawn is deposited into another First-Time/Second-Chance Homebuyer Savings Account within 60 days of withdrawal, the entire account balance, including interest, will be taxed, and the amount withdrawn assessed a 10 percent penalty. The penalty will be waived if the withdrawal is due to:
1)    The account holder dying
2)    The account holder becoming disabled
3)    The account holder exhausting unemployment compensation benefits
4)    The account holder’s bankruptcy filing

No. While non-account holders can deposit funds into another’s savings account, income tax deductions are limited to the account holder.

If no other account holder is on the account, the account funds will be dispersed by the financial institution either under the terms of the account contract or as directed by law. The 10 percent penalty will be waived, but the accounts may be subject to tax as gross income. If another account holder is on the account, the living account holder may leave the account open, subject to the ten-year limitation.

On your tax return, as an adjustment to income, deduct the deposits into your First-Time/Second-Chance Homebuyer Savings Account made during the tax year for which you are filing a return (Alabama form 40, Page 2, Part II). Submit to the Alabama Department of Revenue the Form 1099 that you receive from the financial institution for the account, and, if not specified on the Form 1099, a list of transactions for the account during the tax year (monthly or quarterly statements for the year will provide the transaction detail required). Failure to provide sufficient information to the Alabama Department of Revenue may cause the deduction to be denied and the interest earned to be taxed and a penalty to be incurred. 

Accounts may only be opened by Alabama residents and the funds must be used to purchase a home in Alabama. If the funds are not used to purchase a home in Alabama, any amounts previously deducted and the interest not previously taxed must be included in the taxpayer’s income. Also, deductions from deposits only reduce income on your Alabama tax return, not income on tax returns for other states or the federal government.

Withdraw the funds from the account and use the funds to pay for eligible costs.

Upon withdrawal of funds from the savings account to pay for eligible costs, send the Alabama Department of Revenue:

Withdraw the $500 from the account. When filling out your income tax return, you will do one of two things: (A) If the $5,000 was deducted from your income in a previous year, you will need to add the $500 not used to purchase the home to your income; or (B) If you have not deducted the $5,000 from your income, you will only deduct from your income the $4,500 or amount up to $4,500 total not already deducted.

Unless the full amount withdrawn is deposited into another First-Time/Second-Chance Homebuyer Savings Account within 60 days of withdrawal, the entire account balance, including interest, will be taxed, and the amount withdrawn assessed a 10 percent penalty.  Rolling the FHSA into another FHSA does not extend the ten-year requirement to use the funds to purchase a home in Alabama.

No, rolling over funds from one FHSA to another does not extend the time requirement to utilize the funds for purchasing a home.

Yes. You can open the account but cannot purchase the home until 10 years after you have previously owned a home. 

Yes. The deductions for deposits only apply to your income for state tax purposes. Interest earned is still subject to any applicable federal taxes.