It’s an exciting time to be a first-time homebuyer in Virginia! Why? Among other reasons, Virginia has a homebuyer savings plan!

Many people still have not heard of the Virginia bill (HB 331), the first-time homebuyer savings plan introduced by the Virginia Housing Commission. This is an amazing, relatively new piece of legislation that encourages saving for a home by reducing Virginia state tax.

Here is what you need to know to take advantage of this plan.

How does it work?

First, an investment or savings account is designated by a qualified, first-time homebuyer for the sole purpose of saving for a home. You can designate almost any existing account as a first-time homebuyer savings plan.

To create the plan, you include a form when you file your state taxes. The form will state that you should not be taxed on any earning (such as capital gains or interest) because the account is for a qualified, first-time homebuyer purchasing a home.

After you use the money towards the closing costs on a first home, you send in a different form to the Department of Taxation, showing that the funds were put toward an “eligible cost.”

The bill allows for individual income tax subtraction for income earned on contributions to the account if the funds are used for saving for a home.

Who is a qualified homebuyer?

A qualified homebuyer would be someone living in Virginia who has never owned property, individually or jointly, anywhere in the United States. The Virginia Association of Realtors says, “If you owned a home at some point but did not purchase one — e.g., if you inherited — you can still qualify.”

What are qualified expenses?

Qualified expenses are anything included on the settlement statement, such as a down payment, closing costs, inspections and lender fees.

How much money can be put into the account?

The bill limits the amount of principal that can be contributed to any account to $50,000 and limits the total amount that can be retained in an account at any time to $150,000.

What are the restrictions?

Money saved cannot be used for anything other than eligible costs without penalty.

If money is withdrawn from the account for purposes other than to pay eligible costs, any income previously subtracted would be subject to state tax, and a five percent penalty would be imposed.

Note, there are no penalties if the funds are withdrawn because of the death or disability of the account beneficiary, if there is a disbursement of assets protected under federal bankruptcy laws or if funds are transferred to another first-time homebuyer savings account.

How can I find out more?

Contact Belinda Jacobson-Loehle, real estate broker and certified home stager, at 703-338-9678 or via email, Belinda@JacobsonRealty1.com.

For information on Virginia homes for sale and for more real estate tips, visitwww.JacobsonRealty1.com or www.JacobsonRealtyandHomeStaging.com.