2025 November Special Session of the Connecticut General Assembly

Summary of Legislation Impacting the Department of Revenue Services

Income Tax and Corporation Business Tax:

• Establishment of a “First-Time Homebuyer Savings Account”: Section 1 of the legislation establishes a “first-time homebuyer savings account,” which term is defined in the legislation. Under the legislation, a person may establish a “first- time homebuyer savings account” with a “financial institution.” The legislation does not limit the number of such accounts a person¹ may open with the “financial institution.” The legislation imposes certain reporting obligations on the account holders as well as restrictions on the use of the monies placed in such accounts. The legislation also imposes penalties in connection with any misuse of funds placed in such an account and provides guidance to financial institutions relative to the administration of such accounts. From an administrative perspective, the legislation requires the Commissioner to prepare and make available to account holders forms to be used by said account holders to meet the reporting requirements mandated by the legislation. Additionally, the legislation allows the Commissioner to gather any additional information he determines necessary to administer the provisions thereof.
  
  Section 2 of the legislation establishes several subtraction modifications associated with a “first-time homebuyer savings account.” The first modification set forth in section 2 of the legislation is for an “account holder,” as said term is defined in section 1 of the legislation. Subject to income limitations,² and provided the contributions are not otherwise deductible in determining federal adjusted gross income, each “account holder” is eligible to deduct deposits made into a ”first-time homebuyer savings account” during a taxable year, less any amounts withdrawn during said taxable years by the “account holder” from such account. Please note that, for the taxable year commencing on and after January 1, 2027, an “account holder” may take into account the deposits made into such an account during both taxable year 2026 and taxable year 2027 in calculating the subtraction modification for said taxable year. Regardless of the amount of contribution in any taxable year, the allowable subtraction amount shall not exceed two thousand five hundred dollars ($2,500) for an unmarried individual, a married individual filing separately or a head of household and shall not exceed five thousand dollars ($5,000) for married individuals filing jointly in any taxable year. For each taxable year commencing on and after January 1, 2027, and subject to the same requirements (i.e., filing status and income limitations) set forth in footnote 2, section 2 of the legislation also provides for a separate subtraction modification for each “account holder” in an amount equal to the sum of all interest accrued on a “first-time homebuyer savings account” during the taxable year.
  
  The legislation also authorizes a subtraction modification for an “account holder” who is a “qualified beneficiary” of a “first-time homebuyer savings account,” as said terms are defined in section 1 of the legislation. Subject to income limitations,³ and provided the contributions are not otherwise deductible in determining federal adjusted gross income, each “account holder” who is a “qualified beneficiary” of a “first-time homebuyer savings account” is eligible to deduct in any taxable year an amount equal to any withdrawal from such account that is used to pay or reimburse such qualified beneficiary for “eligible costs,” as said term is defined in section 1 of this legislation, incurred by the qualified beneficiary.
  
  Section 3 establishes a tax credit for employers that contribute to a current employee’s first-time homebuyer savings account. The credit, which can be claimed against the tax imposed under chapters 208 or 229 (other than the liability imposed by Conn. Gen. Stat. § 12-707), is equal to ten per cent (10%) of the contribution made by an employer of an “account holder” into a “first-time homebuyer savings account” and is capped at two thousand five hundred dollars ($2,500) per “account holder” per income or taxable year.
  
  Sections 1-3 are each effective January 1, 2026.
  o See Sections 1-3 of 2025 Conn. Pub. Acts 1 (November Spec. Sess.)

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