Colorado § 39-22-4705 - Eligible expenses - penalties for other uses.

§ 39-22-4705. Eligible expenses - penalties for other uses.

(1) (a) For purposes of the income tax benefit conferred under this part 47, the money in a first-time home buyer savings account may be:

(I) Used for eligible expenses related to a qualified beneficiary's purchase of his or her primary residence in the state;

(II) Used for eligible expenses related to a qualified beneficiary's purchase of his or her primary residence in or outside the state, if the qualified beneficiary is active-duty military and was stationed in Colorado for any time after the creation of the account;

(III) Used for expenses that would have qualified under subparagraph (I) or (II) of this paragraph (a), but the contract for purchase did not close;

(IV) Transferred to another newly created first-time home buyer savings account; or

(V) Used to pay a service fee that is deducted by the financial institution.

(b) Paragraph (a) of this subsection (1) applies regardless of whether the qualified beneficiary is the sole owner of the primary residence or joint owner with another person who does not qualify as qualified beneficiary. The money in a first-time home buyer account may not be used for the purposes in subparagraphs (I), (II), and (III) of paragraph (a) of this subsection (1) related to the purchase of a manufactured or mobile home that is not taxed as real property.

(2) Money withdrawn from a first-time home buyer savings account is subject to recapture in the taxable year in which it is withdrawn based on a proportion from the account subtracted under section 39-22-104 (4)(w)(I) to the total amount in the account, if:

(a) At the time of the withdrawal, it has been less than a year since the first deposit in the first-time home buyer savings account; or

(b) The money is used for any purpose other than those specified in subsection (1) of this section.

(3) If any money is subject to recapture under paragraph (b) of subsection (2) of this section, the account holder shall pay to the department a penalty in the same taxable year as the recapture. If the withdrawal was made ten or fewer years after the first deposit in the first-time home buyer savings account, then the penalty is equal to five percent of the amount subject to recapture, and if the withdrawal was made more than ten years after the first deposit in the account, then the penalty is equal to ten percent of the amount subject to recapture. But these penalties do not apply if:

(a) The money is used for eligible expenses related to a qualified beneficiary's purchase of his or her primary residence outside of the state; or

(b) The money is from a first-time home buyer savings account for which the qualified beneficiary dies and the account holder does not designate a new qualified beneficiary during the same taxable year.

(4) If the account holder or, if the first-time home buyer savings account is jointly owned, account holders die, then all of the money in the account that was subtracted from taxable income is subject to recapture in the taxable year of the death or deaths, but no penalty is due to the department.

Source: L. 2016: Entire part added, (HB 16-1467), ch. 321, p. 1304, § 2, effective August 10.