If you live in the state of Colorado and are looking to buy a home for the first time, you want to take advantage of a First-Time Homebuyer Savings Account (FHSA). These accounts, which you identify on your state tax forms, allow residents to set aside up to $50,000 towards the closing costs on their first home. As long as you only use the money for that, any interest or other earnings on that money won’t be taxed by the state government.
Any savings account can be designated an FHSA, but the money in the account must be exclusively devoted to any fees that come with closing a new home. This can go toward the cost of the home, but it can also cover related fees such as inspections, closing costs and lender fees. As long as it’s on the settlement statement, it qualifies. In addition to traditional savings accounts, mutual funds, CDs, money markets, stocks, and bonds can also qualify as FHSAs.
There’s a limit to how much money can be in the account, however. The initial investment can’t exceed $50,000, and the total amount of growth can’t exceed $150,000 or the account will no longer qualify. The annual investment cap is $14,000, though that jumps to $28,000 between the two of you if you’re filing jointly, though there’s no limit on how long the account can last.
The money from those accounts can go to first-time purchases of single-family homes, condos, townhouses, and mobile homes. You can also qualify as a first-time home buyer if you previously owned a home you inherited but didn’t buy, or if you’re divorced and previously purchased a house as part of a married couple. Even if you don’t qualify under any of these categories, you can still open an account and use the money for someone else who does qualify.
If you can check yes on all the above boxes, getting your FHSA account started is easy. Simply include the correct form with your state taxes when you first designate the account, and include a different form after you’ve used the money on the closing costs. A copy of the initial form can be found online at Instructions for First Time Home Buyers Subtraction