The Senate Community and Urban Affairs Committee unanimously approved legislation that would extend tax breaks to certain prospective homeowners on Thursday.
The bill (S335) would create a new type of savings account shielding deposits and withdrawals used for a home purchase from New Jersey’s income tax and offer an annual income tax credit measured against deposits into the fund.
“When you factor in student loan challenges that so many people are facing, high rents, and how our economy keeps evolving in ways that sometimes prevents homeownership, it really hinders one’s ability to live the American dream and achieve their American dream of homeownership,” said Sen. Troy Singleton (D-Burlington), the bill’s prime sponsor and the committee’s chairman.
The bill would allow eligible homeowners to deposit up to $15,000 annually into homebuyer savings accounts, up to an aggregate cap of $75,000. They would receive an income tax credit equal to 5% of deposits made in a given tax year.
That means the tax credit would be worth up to $750 — or half as much for married individuals filing separately — but would vary, and its impact could be limited for residents without the means to sock away $15,000.
“We think that it’s crucial in a high-cost state like New Jersey that we provide other ways or means for individuals to get into housing here in the state,” Jarrod Grasso, CEO of the New Jersey Realtors Association, told the committee. “First-time homebuyer savings accounts are a key element to helping our young families get started investing in housing.”
To be eligible, prospective homeowners must have earned no more than $175,000 in the three years preceding their application, would be required to complete a home buyer education course, and would be barred from maintaining any other first-time homebuyer savings accounts.
They also must not have purchased or owned a home in New Jersey or owned a home used as a permanent residence in another state in the current tax year or the three preceding tax years.
Withdrawals from the fund for purposes unrelated to a home purchase would incur a penalty of 10% of the withdrawn amount, with exceptions for death, disability, and bankruptcy.
The effort to stand up a state-level down payment assistance program is longstanding and has historically won bipartisan backing.
A version of Singleton’s bill from the 2016-2017 legislative session unanimously cleared the Senate and sailed through committees in the lower chamber but never reached a vote on the Assembly floor despite industry support.
Rising home prices and interest rates may spur a renewed focus on aid for first-time homebuyers. Average house prices in New Jersey rose by roughly 37% between the first quarter of 2020 and the third quarter of 2022, according to an index maintained by the Federal Housing Finance Agency.
The market appears to be cooling off. The Federal Housing Finance Agency late last month reported nationwide house prices remained flat in October, though they rose by one-tenth of a percent in the Middle Atlantic region, which includes New Jersey, New York, and Pennsylvania.
The agency is due to release state-level breakdowns for the fourth quarter of 2022 in late February, and home prices are expected to begin falling as the Federal Reserve continues to tweak interest rates amid persistent inflation that is only beginning to ease.
The heightened interest rates are also likely to be a barrier to borrowers, but one the senator said dedicated savings accounts could defray.
“We think with the housing correction that we anticipate, this will be a boost for first-time homebuyers and their ability to own homes,” Singleton said.