Md. Code Regs. 03.04.02.18

Current through Register Vol. 51, No. 12, June 14, 2024

Section 03.04.02.18 - Subtraction for Contributions to First-Time Homebuyer Savings Accounts

A. Definitions.

(1) In this regulation, the following terms have the meaning indicated.

(2) Terms Defined.

(a) "Account holder" means a first-time homebuyer who establishes a first-time homebuyer savings account.

(b) "Allowable closing costs" means a disbursement listed on a settlement statement for the purchase of a home in the State by an account holder.

(c) "Eligible costs" means the down payment and allowable closing costs for the purchase of a home in the State by an account holder.

(d) "Financial institution" has the meaning stated in Financial Institutions Article, § 1-101, Annotated Code of Maryland.

(e) "First-time homebuyer" means an individual who is a resident of the State and who has not owned or purchased, either individually or jointly, a home in the State in the last 7 years.

(f) "First-time homebuyer savings account" or "account" means an account with a financial institution that an account holder designates as a first-time homebuyer savings account on the account holder's Maryland income tax return for taxable year 2021 or any following taxable year and that is established for the sole purpose of paying or reimbursing eligible costs for the purchase of a home in the State by the account holder.

(g) "Home" means a single-family residential real property, including a mobile home as defined in Real Property Article, § 8A-101, Annotated Code of Maryland.

(h) "Settlement statement" means the statement of receipts and disbursements for a transaction related to real estate, including a statement prescribed under the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. §§ 2601 - 2617 and 12 CFR 1024.

B. Availability of Subtraction.

(1) Subject to the limitations in §B(2) of this regulation, the following amounts are allowed as a subtraction from the federal adjusted gross income to determine Maryland adjusted gross income:

(a) Up to $5,000 of the amount contributed by an account holder to a first-time homebuyer savings account during the taxable year; and

(b) The earnings, including interest and other income on the principal, from the account during the taxable year.

(2) Limitations.

(a) An account holder may claim the subtraction under §B(1) of this regulation:

(i) For a period not to exceed 10 years;

(ii) For total earnings not to exceed $50,000 during the 10-year period; and

(iii) Except as provided for in §D(2) and (3) of this regulation, if the principal and earnings of the account remain in the account until a withdrawal is made for eligible costs related to the purchase of a home by the account holder.

(b) An account holder may not be the account holder of more than one account.

(c) The account holder shall use the funds in the account for eligible costs related to the purchase of a home within 15 years following the date on which the account was established.

(d) Any funds in the account for which a subtraction was claimed and not expended on eligible costs by December 31 of the last year of the 15-year period under §B(2)(c) of this regulation shall be subject to taxation as ordinary income.

(e) A person other than the account holder who transfers money to the account is not entitled to the subtraction.

(f) The subtraction is available in all taxable years beginning after December 31, 2020.

(3) An individual may jointly establish an account with another person if the joint account holders are both first-time homebuyers and file a joint State income tax return.

(4) Joint Returns.

(a) Each spouse on a joint return who is the sole account holder of a first-time homebuyer savings account may claim up to the full amount of the subtraction under §B(1) of this regulation.

(b) The amount claimed by each spouse is limited to their:

(i) Contributions to the account on which they are the account holder; and

(ii) Earnings on the account on which they are the account holder.

C. Claiming the Subtraction.

(1) An account holder claiming a subtraction shall file with the income tax return on which the subtraction is claimed, and each subsequent year, whether or not the subtraction is claimed in each subsequent year, until the funds are used for eligible costs, a list of transactions for the account during the taxable year.

(2) On withdrawal of funds from the account, submit to the Comptroller a detailed account of the eligible costs toward which the account funds were applied and a statement of the amount of funds remaining in the account, if any.

(3) The detailed account of the eligible costs described in §C(2) of this regulation shall include:

(a) Copies of statements provided by the account holder's financial institution; and

(b) The settlement statement related to the purchase of the home in the State by the account holder.

D. Withdrawal for Purposes Other than Eligible Costs.

(1) Except as authorized under §§D(2)(a) and (3) of this regulation, if the account holder withdraws any funds for which a subtraction has been claimed from the account for a purpose other than eligible costs for the purchase of a home:

(a) The funds shall be taxed as ordinary income of the account holder for the tax year in which they were withdrawn; and

(b) The account holder shall pay a penalty to the State equal to 10 percent of the amount withdrawn.

(2) Rollovers.

(a) An account holder may withdraw money from the account and deposit the money in a new first-time homebuyer savings account held by a different financial institution or the same financial institution.

(b) An account holder who withdraws funds from an account but does not deposit the funds in a new first-time homebuyer savings account within 60 days of withdrawal shall be subject to the tax and penalty described in §D(1) of this regulation.

(3) A disbursement of any assets of a first-time homebuyer savings account under a filing by an account holder for protection under the United States Bankruptcy Code, 11 U.S.C. §§ 101 - 1330, does not subject the account holder to the liabilities described in §D(1) of this regulation.

(4) A use of the account funds to pay a financial institution's administrative costs is not be considered a withdrawal from the account subject to the provisions of §D(1) of this regulation if the administrative costs:

(a) Are disclosed by the financial institution, in writing, to the account holder at the time the account is opened; and

(b) Do not inure to the benefit of the account holder.

Md. Code Regs. 03.04.02.18

Regulation .18 adopted effective 49:6 Md. R. 404, eff. 3/21/2022