State tax break for homeowners

Come January 1, Mississippians looking to buy their first home can get a state income tax break on deposits into a special savings account.

However, the law allows for the potential of fraud because it relies on the honor system to ensure money put into a fund is actually used to buy a home, and the potential tax savings max out at $250 per year, not enough to make or break the decision to purchase a house.

The state legislature passed House Bill 1601 earlier this year. Beginning in 2018, first-time homebuyers can deduct $2,500 if they are filing individually and $5,000 if married filing jointly for money saved toward buying a home.

The law says money withdrawn from the account for anything other than a mortgage will be taxable along with a 10 percent penalty.

However, it also says banks are not required to designate the accounts as first-time home buyers savings accounts, track the use of the funds or report anything to the Mississippi Department of Revenue. Clearly, banks have a lot of paperwork headaches to deal with and didn’t want another one.

But that means there are no checks on fraud. Someone could open a new account, say it was for a mortgage and use it for anything else while still reaping the tax break. There would be no way to catch them unless the state happened to audit them, which is unlikely.

For a married couple, the maximum they could save on their state taxes would be $250. For an individual, it would be $125. That’s hardly a windfall when making a purchase that is often upwards of $100,000.

Still, sometimes the point is not the amount, but the emotional factor for people to feel like they’re benefitting from saving. From that perspective, it’s a good thing.

From another viewpoint, Mississippi seems to be doing well in this area already without needing tax breaks to stimulate it further. Home ownership rate is one of the few areas where the state is not last or near the bottom in the nation. According to census data, the national home ownership rate was 63.9 percent in the third quarter of 2017. Mississippi’s rate was 69.9 percent, good for 16th in the nation (West Virginia was first at 75.6 percent and New York was last at 51.1 percent).

Mississippi’s high home ownership rate can probably be attributed to the relatively low cost of housing here and the generous homestead exemption that provides substantial property tax savings for all homeowners and especially senior citizens.

So if you’re contemplating buying a home for the first time, the savings account tax break is worth looking into. But for the rest of the state’s residents, it’s questionable if the law will provide more benefits than the cost in foregone tax revenue.

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