Michigan offers tax-advantaged plan to help individuals save for purchase of first home

For aspiring homeowners in Michigan, the state is offering a new option: Open a first-time home buyer savings account and make contributions to it that can be deducted from state income taxes (up to $5,000 a year for single filers and $10,000 for joint returns).

The state’s First-Time Home Buyer Savings Program is the result of HB 4290 and SB 145, bipartisan bills signed into law in early 2002. The program would sunset after 2026 without additional legislative action. Balances in these new accounts are capped at $50,000, but interest earnings can continue to accrue beyond this maximum level. Withdrawals for any unqualified expense will incur a 10 percent penalty.

Michigan joins Iowa and Minnesota in offering such a savings program for first-time home buyers.