You might qualify for this subtraction if:
You’ve set up a first time home buyer savings account with your bank or another financial institution.
What is this subtraction?
Income produced by a first time home buyer savings account, such as interest and capital gains, that is taxed by the federal government is not taxable by Virginia. You can subtract this income from your federal adjusted gross income to figure out your Virginia adjusted gross income.
What is a first time home buyer savings account?
You can designate any account set up with a Virginia financial institution as a first time home buyer savings account. This would include savings accounts, of course, but eligible account types would also include (but not be limited to):
- other bank accounts
- mutual funds
- certificates of deposit (CDs)
- brokerage accounts
- money market accounts
Money in the account can only be used to pay the down payment or closing costs on the purchase of a single-family home by a qualified beneficiary.
A “qualified beneficiary” can be you, or someone named by you, who has never owned a single-family home before. The beneficiary has to live in Virginia when they buy a single-family home.
How to claim the subtraction
Designate an account as a first time home buyer savings account by including the following with your Virginia income tax return for the first year that you’re claiming the subtraction:
- The name and address of the financial institution that maintains the account
- The names of any other individuals with an ownership interest in the account
- The account number
- The type of principal (cash or marketable securities) contributed to the account as of the last day of the taxable year
- The amount of principal and interest in the account as of the last day of the taxable year
- The amount of any withdrawals from the account during the taxable year
- The account beneficiary or beneficiaries
If you have more than 1 account, you’ll need to submit separate documentation for each of them. You’ll need to submit updated information every year that you continue to file a Virginia income tax return.
Claim the subtraction on Schedule ADJ, (Schedule 760PY-ADJ for part-year residents; Schedule 763-ADJ for nonresidents.)
Limitations on first time home buyer savings accounts
Only cash and marketable securities (stocks, bonds, etc.) can be contributed to these accounts as principal. First time home buyer savings accounts can have no more than:
- $50,000 of principal
- $150,000 of principal and interest
If an account has more than these, no subtraction may be claimed. If the account has anything other than cash or marketable securities as principal, no subtraction may be claimed. These limits apply to each of your first time home buyer savings accounts.
Money in the account can only be used to pay the down payment or closing costs on the purchase of a single-family home by a qualified beneficiary. If you use it for anything else, you have to pay back all of the subtractions you had previously claimed for this account, no matter when the withdrawal happens.
For more information, check out the First Time Home Buyer Savings Account Guidelines.