How does the Kansas first-time home buyer savings account work and what is the tax benefit?
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This page answers the general question as of 2021. Ezel answers yours, under current Kansas tax law, with citations.
Plain-English summary
Kansas Notice 21-06 explains the First-Time Home Buyer Savings Account Act, created by 2021 House Bill 2187, which also amended K.S.A. 79-32,117 to add Kansas income addition and subtraction modifications. The provisions are effective for tax year 2022 and after.
Purpose and eligibility. An account may be used to pay or reimburse a designated beneficiary's eligible expenses for the purchase or construction of a primary residence in Kansas. A "first-time home buyer" is an individual who has never owned (individually or jointly) a single-family, owner-occupied primary residence (including a condo or a manufactured/mobile home taxed as real property), or who, after a dissolution of marriage, has not been on a property title for at least three consecutive years.
Opening an account (New Section 3). An individual may open an account on or after July 1, 2022, and designate themselves or someone else as beneficiary by April 15 of the following year (one beneficiary per account; changeable at any time). Contribution limits are:
- Annual: $3,000 (individual) / $6,000 (married filing jointly);
- Lifetime (all years): $24,000 (individual) / $48,000 (joint); and
- Per account balance: $50,000 maximum.
If the limits are exceeded, the interest or income earned becomes subject to Kansas income tax. Money may remain in the account indefinitely without the earnings being recaptured, and account funds may not be used to administer the account except a service fee.
Eligible uses and recapture (New Section 4). Funds may be used for eligible expenses for a beneficiary's purchase or construction of an in-state primary residence (or an out-of-state residence for active-duty military stationed in Kansas), for expenses that would have qualified but the deal did not close, transferred to a new account, or to pay financial-institution service fees. Money withdrawn is subject to recapture by the Secretary in the year withdrawn if it has been less than a year since the first deposit, or if it is used for a non-authorized purpose.
The tax modifications (Section 7 -- K.S.A. 79-32,117). For tax years beginning after December 31, 2021:
- Subtraction: the amount contributed (up to $3,000 individual / $6,000 joint) and amounts received as income earned on account assets; and
- Addition: contributions to, or earnings from, an account where distributions were not used for authorized expenses or not held for the required minimum time (including amounts from failing to designate a transfer-on-death beneficiary).
A financial institution is not required to designate or track these accounts, report to the Department, or determine eligibility. Forms and further information were to follow.
What this means for you
Prospective first-time home buyers
- Starting July 1, 2022, you can open a savings account and subtract up to $3,000 ($6,000 if married filing jointly) of contributions plus the account's earnings from Kansas income.
- Use the funds for eligible costs of buying or building a Kansas primary residence; withdrawing within a year of the first deposit or for other purposes triggers recapture (added back to income).
Account holders and savers
- Lifetime contributions are capped at $24,000 (individual) / $48,000 (joint) and each account at $50,000; exceeding the limits makes the earnings taxable.
- Money can stay in the account indefinitely without the earnings being recaptured, as long as it is eventually used for eligible expenses.
Financial institutions
- You are not required to designate, track, or report these accounts, or to determine the holder's eligibility.
Common questions
Who is a "first-time home buyer"? Someone who has never owned a single-family owner-occupied primary residence, or who after a divorce has not been on a property title for at least three consecutive years.
When can accounts be opened? On or after July 1, 2022; the tax modifications apply for tax year 2022 and after.
What are the contribution limits? $3,000 per year for an individual ($6,000 joint), $24,000 lifetime ($48,000 joint), and a $50,000 account maximum.
What is the tax benefit? A subtraction for contributions (up to the annual cap) and for account earnings from Kansas income.
When is recapture triggered? If money is withdrawn less than a year after the first deposit, or is used for a purpose other than authorized eligible expenses.
Citations and references
- House Bill 2187 (2021) -- establishes the First-Time Home Buyer Savings Account Act (New Sections 1-6) and the tax modifications, effective for tax year 2022 and after.
- K.S.A. 79-32,117 -- amended (Section 7) to add the subtraction for contributions and earnings and the addition for non-qualified distributions.
- New Sections 3-4 -- account limits ($3,000/$6,000 annual, $24,000/$48,000 lifetime, $50,000 balance) and the recapture rules.
Source
- Landing page: Kansas Department of Revenue Policy Information Library
- Original document: Notice 21-06
Original ruling text
Policy and Research
109 SW 9th Street Phone: 785-368-8222
PO Box 3506 Fax: 785-296-1279
Topeka KS 66601-3506 www.ksrevenue.org
Mark A. Burghart, Secretary Laura Kelly, Governor
NOTICE 21-06
First-Time Home Buyers Savings Account Act
(AUGUST 9, 2021)
During the 2021 Legislative Session House Bill 2187 was passed and signed into law. The
Bill establishes the first-time home buyer savings account act, which may be used to pay or
reimburse a designated beneficiary's eligible expenses for the purchase or construction of a
primary residence in Kansas. As part of the Bill, K.S.A. 79-32,117 is amended to provide new
Kansas income addition and subtraction modifications for contributions to first-time home buyer
savings accounts.
New Section 1 of the Bill establishes the first time home buyers savings account act.
New Section 2 provides definitions for the following terms: account or first-time home buyer
savings account, account holder, designated beneficiary, eligible expenses, financial institution,
first-time home buyer, and Secretary. The term "first-time home buyer" is defined to mean an
individual who:
(1) Has never owned or purchased under contract for deed, either individually or
jointly, a single-family, owner-occupied primary residence including, but not limited
to, a condominium unit or a manufactured or mobile home that was assessed and taxed
as real property; or
(2) as a result of the individual's dissolution of marriage, has not been listed on a
property title for at least three consecutive years.
New Section 3 defines the process of opening an account and designating a beneficiary as
follows:
(a) an individual may open an account on and after July 1, 2022.
(b) an account holder may designate themselves or someone else as the beneficiary of the
account by no later than April 15 of the year following the taxable year during which
the account is established; there can be only one designated beneficiary per account;
they may change the beneficiary at any time; an individual may be the beneficiary of
more than one account if they are held by separate account holders.
(c) (1) defines the limits of the account as follows:
(A) annual maximum contribution shall be $3,000 for an individual, $6,000 for
a married couple filing a joint return;
(B) maximum amount of all contributions in all tax years shall be $24,000 for
an individual and $48,000 for a married couple filing a joint return; and
(C) the maximum amount in each account shall be $50,000.
(2) states that if limits set in paragraph (1) are exceeded, all interest or other income
earned shall be subject to Kansas income tax.
(3) Moneys may remain in an account for an unlimited duration without the interest
or income being subject to recapture or penalty.
(d) account holder shall not use moneys in the account to pay expenses of administering
the account, except a service fee; account holder is responsible for maintaining
appropriate documentation related to account.
New Section 4 defines how the moneys in the account may be used for eligible expenses and
what happens if they are not used for eligible expenses and become subject to recapture.
Subsection (a)(1) of New Section 4 states:
New Sec. 4. (a)(1) The moneys in a first-time home buyer savings account may
be:
(A) used for eligible expenses related to a designated beneficiary's purchase or
construction of a primary residence located in this state;
(B) used for eligible expenses related to a designated beneficiary's purchase or
construction of a primary residence located outside of this state if such designated
beneficiary is active-duty military and was stationed in Kansas for any time after the
creation of the account;
(C) used for eligible expenses that would have qualified pursuant to paragraph
(1)(A) or (1)(B) but the contract for purchase or construction did not close;
(D) transferred to another newly created account; and
(E) used to pay service fees assessed by the financial institution.
New Section 4 also provides moneys not used for an eligible purpose are subject to recapture.
Subsection (b) of New Section 4 provides:
(b) Moneys withdrawn from an account shall be subject to recapture by the
secretary in the tax year in which they were withdrawn if:
(1) At the time of the withdrawal, it has been less than a year since the first deposit
in the account; or
(2) the moneys are used for any purpose other than the expenses or transactions
authorized pursuant to subsection (a)(1).
New Section 5 states that the Secretary shall establish forms for the account holder to use in
filing annual state tax returns and adopt rules and regulations necessary to administer the program.
New Section 6 states that a financial institution is not required to designate an account as a
first-time home buyer savings account, track the use of moneys, report any information to the
department of revenue; or be responsible or liable for determining eligibility of an account holder,
or that the moneys are used for eligible expenses, or report use of moneys in the account.
Section 7 amends K.S.A 79-32,117, which requires or allows additions to or subtractions
from federal adjust gross income in order to calculate Kansas adjusted gross income. Subsection
(b) of the statute is amended to provide an addition modification:
(b) There shall be added to federal adjusted gross income:
(xxvii) For all taxable years beginning after December 31, 2021, the amount of
any contributions to, or earnings from, a first-time home buyers savings account if
distributions from the account were not used to pay for expenses or transactions
authorized pursuant to section 4, and amendments thereto, or were not held for the
minimum length of time required pursuant to section 4, and amendments thereto.
Contributions to, or earnings from, such account shall also include any amount
resulting from the account holder not designating a surviving transfer on death
beneficiary pursuant to section 4(e), and amendments thereto.
Subsection (c) of the statute is amend to provide a subtraction modification:
(c) There shall be subtracted from federal adjusted gross income:
(xxv) For all taxable years beginning after December 31, 2021: (1) The amount
contributed to a first-time home buyer savings account pursuant to section 3, and
amendments thereto, in an amount not to exceed $3,000 for an individual or $6,000 for
a married couple filing a joint return; or (2) amounts received as income earned from
assets in a first-time home buyer savings account.
The provisions of the Bill will be effective for tax year 2022, and all subsequent tax years.
Forms and additional information will be available in the near future.
TAXPAYER ASSISTANCE
Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about this Notice, please contact:
Taxpayer Assistance Center
Kansas Department of Revenue
Scott Office Building, 1st Floor
120 SE 10th Ave
P. O. Box 3506
Topeka, KS 66601-3506
Phone: 785-368-8222
Fax: 785-291-3614
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