With less than six weeks to go before banks can begin offering tax-advantaged savings accounts to first-time home buyers, the Connecticut Department of Revenue Services has yet to finalize plans on how buyers can take those incentives, and any accompanying oversight mechanisms.
Starting in January, banks and credit unions can offer dedicated savings accounts that home buyers can use to cover down payments and closing costs, and deduct those amounts from their state income taxes starting in the 2027 tax year.
Under the new savings accounts, income tax deductions would be capped at $2,500 for individual tax filers and $5,000 for joint filers. Employers will be eligible for tax credits of up to 10% of contributions to qualifying employees' savings accounts, capped at $2,500 for any employee.
The individual deductions and employer credits were part of a larger housing bill signed into law Wednesday by Gov. Ned Lamont after a special session this month of the Connecticut General Assembly. Broadly, Public Act 25-1 includes measures to encourage the construction of more houses and apartments; address affordability for renters and homeowners; and reduce the risk of people ending up on the street or in shelters.
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The first-time home buyer accounts would only chip away slightly at the overall cost of owning a home, but the hope is they can help accelerate buyers' timeline for purchases by helping them cover down payments and closing costs that are the first amounts they must shell out.
"We all know that it's really hard to get that first down payment," said state Sen. Martha Marx, D-20th District, speaking last week during a panel discussion sponsored by the Partnership for Strong Communities and webcast on CT-N. "It makes a big difference, not having to pay taxes on $5,000."
While the new bill specifies amounts for tax deductions and credits for first-time home buyers, other details remain to be finalized by the Connecticut Department of Revenue Services. Individuals who make $125,000 or more annually — or joint filers at $250,000 — are not eligible for the tax break.
"We are currently reviewing the impact on our agency and how the provisions will be administered," DRS spokesperson Tiffany Thiele told CT Insider.
Any use of first-time home buyer account funds for other purposes would be subject to a penalty, at 10% of any amounts withdrawn.
The benefits under the program would not match those under an existing, first-time homebuyer assistance program Connecticut offers called Time to Own that offers up to $25,000 in assistance over time. Instead of tax incentives, Time to Own is structured as a forgivable loan, with 10% of the principal balance erased annually from the repayment schedule.
Heading into Thanksgiving week, some $23.2 million under Time to Own remained available. In the most recent week on record in mid-November, the Connecticut Housing Finance Authority approved nearly $1.9 million in forgivable loans, the third highest total for any single week in 2025.
For anyone making a $40,000 down payment toward the purchase of a Connecticut house or condo at the statewide median price of $425,000 as of October, closing costs would total nearly $6,600 according to a Zillow calculator.
The Connecticut Bankers Association and the Credit Union League of Connecticut both supported stand-alone legislation last winter to create savings accounts for first-time home buyers, with that concept folded into the larger housing bill. A CBA lobbyist pointed to the success of the Connecticut Higher Education Trust 529 Program as an example of how tax-advantaged savings accounts can help people build assets, including through employer contributions.
As of last March, college 529 plan account holders in Connecticut held $6.3 billion in assets, up from $257 million when they debuted in 2002 according to the most recent analysis by the Federal Reserve.
Connecticut becomes just the latest state to introduce the concept of savings accounts for first-time homebuyers. Approaches have differed on incentives and program caps.
A few states allow people to use the program who have owned homes during prior periods of their lives, including Colorado which allows people to apply three years after a divorce regardless of prior home ownership. Maryland allows people to tap the program if they have not owned a home for at least seven years.
In Maryland, home buyers can use a standard savings account for the purpose of putting aside funds for a home purchase and future tax benefits, as long as the account is used solely for that purpose with no other funds intermingled. Banks are allowed to set up their own homebuyer savings account programs as well.
M&T Bank, which has experience with Maryland's program via its branch network there, is still working on the details for offering the savings accounts in Connecticut; as is Middletown-based Liberty Bank, according to spokespeople for the two banks. Among commercial banks, Liberty Bank and M&T Bank are the two most-active residential lenders under Connecticut Housing Finance Authority programs like Time to Own.
Includes prior reporting by Ken Dixon, Paul Hughes and Alex Putterman.
Alexander Soule is a staff writer with Hearst Connecticut Media focused on business, development and the Connecticut economy. Alex is a Maine native who served a two-year enlistment in the U.S. Army before attending Connecticut College. Before joining Hearst Connecticut, Alex started a growth economy website called Enterprise CT chronicling Connecticut startups, with previous work including the Fairfield County Business Journal, the Boston Business Journal, the Rochester Business Journal, Mass High Tech, InsuranceTimes and the MIT Sloan School of Management at the Massachusetts Institute of Technology.