Administrative Rules of Montana › Department 42 - REVENUE › Chapter 42.15 - INCOME TAX › Subchapter 42.15.9 - First-time Home Buyer Deductions › Rule 42.15.906 - TAX EXEMPTION FOR FIRST-TIME HOME BUYER

Current through Register Vol. 13, July 5, 2024
(1)
				An account holder who remains a "first-time home buyer" may deposit into an
				account more than the maximum exclusion allowed under
				15-63-202, MCA, in any given tax
				year and may exclude from subsequent years any amounts previously deposited and
				not deducted as principal in a prior year.
(2) Once an individual purchases a
				single-family residence, the individual no longer is considered an account
				holder and a first-time home buyer. In subsequent years, the individual is not
				entitled to exclude amounts deposited into a first-time home buyer savings
				account or amounts previously deposited but not yet excluded from the account
				holder's adjusted gross income.
(3)
				Interest or other income earned on the principal is excluded from Montana
				adjusted gross income. Interest on other income on excess contributions, which
				have not yet been classified as principal, is not exempt in the years the
				interest or other income is earned.
(4) The amounts deposited into a first-time
				home buyer savings account is not considered principal until the year it is
				excluded from adjusted gross income pursuant to
				15-30-2110, MCA. For example, if a
				single individual who has never owned a home transfers $15,000 from an existing
				savings account into a first-time home buyer account in year one and purchases
				a qualifying home at the end of December in year three, the effect on their
				Montana returns will be as follows:
(a) For
				year one, the individual reduces their state income by $3,000 plus $90 in
				interest earned on the $3,000 principal only ($90 at the rate of 3% of the
				$3,000 principal). The remaining interest ($360 at the rate of 3% of the
				$12,000 carryover amount) is taxable in year one.
(b) In year two, the single individual is
				allowed a $3,000 carryover reduction plus interest earned on $6,090 ($183 at
				the rate of 3% of the $6,000 principal) for a total of $3,183 reduction on the
				state income tax return. The remaining interest ($281 at the rate of 3% of the
				$9,360 carryover amount) is taxable in year two.
(c) At the end of December in year three, the
				single individual buys a qualifying home. The individual is permitted the
				$3,000 carryover reduction on the Montana income tax for year three plus
				interest earned to the date of purchase ($278 at the rate of 3% on $9,273) for
				a total of $9,551. The taxpayer must spend at least $9,551 for eligible
				first-time home buyer expenses. The amount includes $9,000 that qualifies for
				the reduction ($3,000 for year one; $3,000 for year two; $3,000 for year three)
				plus the tax deferred interest for $551 earned during year one, year two, and
				year three.
(d) Once the taxpayer
				purchases the home, the taxpayer can no longer claim the carryover reduction
				for the portion of the $15,000 ($6,000 plus interest) that the taxpayer did not
				claim as a reduction in prior years.