Mont. Admin. r. 42.15.906 - TAX EXEMPTION FOR FIRST-TIME HOME BUYER

(1) An account holder who remains a "first-time home buyer" and who contributed prior to January 1, 2024, into an account more than the maximum exclusion allowed under 15-63-202, MCA, in any tax year prior to 2024 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 federal taxable income.

(3) Interest or other income earned on the principal is excluded from federal taxable 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 federal taxable income pursuant to 15-30-2120, MCA. For example, if a single individual who has never owned a home transferred $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 three percent of the $3,000 principal). The remaining interest ($360 at the rate of three percent 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 three percent 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 three percent 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 three percent 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.

Notes

Mont. Admin. r. 42.15.906

NEW, 2004 MAR p. 1033, Eff. 4/23/04; AMD, 2010 MAR p. 1088, Eff. 4/30/10; AMD, 2025 MAR, 42-1088, Eff. 1/25/2025

AUTH: 15-1-201, MCA; IMP: 15-63-203, MCA