House Bill 271 — First-time homebuyers

House Bill 271 — First-time homebuyers

by
Phil Haunschild
March 20, 2019

Bill description: HB 271 would allow individuals to save up to $3,000 per year tax-free, to put toward the cost of purchasing a home in Idaho.

Rating: -1

Does it directly or indirectly create or increase any taxes, fees, or other assessments? Conversely, does it eliminate or reduce any taxes, fees, or other assessments?

HB 271 would allow individuals who are purchasing their first home to make up to $3,000 in pre-tax contributions to a savings account which they could then put toward the costs of purchasing a single family residence. A married couple could contribute up to $6,000 per year. If an individual makes the full $3,000 contribution in one year, they could receive a break of slightly more than $200 on their state income taxes (assuming they are in the highest tax bracket, making more than $11,279 per year). A married couple could receive a tax break of just over $400 per year on their state taxes.

In total, the tax cut expected to come from this legislation is $430,060 per year.

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Does it increase government redistribution of wealth? Examples include the use of tax policy or other incentives to reward specific interest groups, businesses, politicians, or government employees with special favors or perks; transfer payments; and hiring additional government employees. Conversely, does it decrease government redistribution of wealth?

The savings accounts established by this legislation would benefit just a handful of individuals in Idaho, at the expense of others. Based on the total estimated savings in the fiscal note, roughly 2,100 individuals would receive the full tax savings from these accounts. The limited number of individuals who are looking to purchase their first home would receive this tax break, while all other residents of the state would be forced to pick up the tab.

To envision this, there might be two separate individuals—one who rents a home while making investments to grow a business, and another, who is saving to purchase a new home. Each makes $50,000,  takes the standard deduction and has no other state credits. The individual who rents his home would have an effective tax rate of 4.97 percent, paying $2,483 in state taxes. The individual saving for a home would only pay $2,275 in state taxes, for an effective tax rate of 4.55 percent.

The legislation would define a first-time homebuyer as an individual who neither owns nor has ever purchased, individually or jointly, a single-family residence in Idaho, nor owns any residence outside of Idaho. While this definition might work well for a young individual who is looking to purchase a home in Idaho, it wouldn’t work for many others, including:

  • Someone who owns a stake in some small investment properties out-of-state.
  • A family who purchased a home in the past, which they sold or lost to a foreclosure due to an economic downturn. Even though the family is renting and doesn’t own any home, since they purchased a home in the past, they would not be eligible to use one of these savings accounts.
  • A young family living in a small one-bedroom home that is looking to purchase a larger home for a child on the way.
  • A married couple looking to purchase a duplex to move into, so that they can live on their own property while having the rent from one apartment cover part of their mortgage.

Establishing a limited first-time homebuyers savings account would pick winners and losers by giving some individuals a tax break, while others would receive no such discount on their state income taxes. This could force some individuals to pay artificially higher effective tax rates as they would be paying for an increased share of public services. This legislation also would make it harder for the state to lower global tax rates.

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Does it transfer a function of the private sector to the government? Examples include government ownership or control of any providers of goods or services such as the Land Board's purchase of a self-storage facility, mandatory emissions testing, or pre-kindergarten. Conversely, does it eliminate a function of government or return a function of government to the private sector?

HB 271 would reward Idahoans for purchasing a home, even when it might not otherwise be the best option for them. For example, a mobile family, such as one in the military, very well might be better off renting a home so as not to invest too heavily in one place without the certainty that they will be sticking around long-term. Investing such a substantial portion of their capital in a single location, without any certainty they will be sticking around, could be unwise.

However, the tax break this family could receive by putting money into a first-time homebuyer savings account might skew their decision toward purchasing a home. Rather than leaving it to individuals or families to determine whether it makes more sense in their particular situation to rent or own a home (or, perhaps, live on the road in a motorhome). HB 271 would give preferential treatment to homeownership over anything else.

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