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Starting in 2017, Coloradans will have a new incentive to start saving for a home! In a collaboration with the Colorado Association of Realtors and the Chairman Advisory Group, the First Time Homebuyer Savings Account (FHSA) program was signed into legislation in June 2016 by the Governor. This paves the way for Coloradans to set aside money that can be put toward the cost of purchasing a new home, an account where earnings on their funds – interest and capital gains – are free from Colorado taxes forever.

Overview of Details:

1. What account type qualifies?

  • Almost any account a financial institution offers, including but not limited to:
    • Interest bearing savings account
    • Mutual Fund
    • Money Market
    • Certificate of Deposit, etc.

2. How much can you stash away?

  • Lifetime contribution cap is $50,000
  • Annual contribution cap is $14,000 (single) or $28,000 (filing jointly)
  • FHSA’s can grow in value to $150,000
  • No limit one how long the account can exist

3. How can First Time Homebuyer Savings funds be used?

Must be used for “eligible expenses” – costs related to closing on a home – anything included on the settlement statement:

  • Closing Costs
  • InspectionF ees
  • Lender Fees
  • Appraisals, etc.

4. Who qualifies as a first time homebuyer? (Definition does not include land or commercial property)

Someone who has never purchased a home, including:

  • Single-family detached residence
  • Condo
  • Townhome
  • Mobile home
  • Co-op
    • Caveat: On title to a residence but did not purchase it (inherited a home)
    • Caveat: Divorcee who previously owned a home with their spouse but has not been listed on a property title for at least three years

5. Can the funds be designated to pay someone else’s closing costs?

Yes! As long as the recipient of the money is a qualified first time home buyer (child, grandchild, niece, even a close friend)

6. What if I am buying a home with someone who is not a first time buyer?

You can still use the funds of your FHSA for buying a home as long as the account holder or beneficiary of the account qualifies as a first time homebuyer.

7. What if I move out of Colorado?

  • Eligible expense only apply to a first time home purchase in Colorado
  • Tax penalties will not be applied however if the funds are used for eligible expenses related to a first time purchase outside the state
  • Tax recapture may apply
    • Caveat: Active-duty military that purchase a home in another state due to being transferred

8. What if the account holder dies?

  • The account is handled like any part of their estate, but the income that was earned would be subject to tax recapture
  • No tax penalties would be applied


The Colorado Department of Revenue will be creating a tax form for FHSA account holders. Account holders simply complete the form and include it when they file their state taxes. The form will include who the designated beneficiary is – child, grandchild, their self – and the form may also include verification that the designated beneficiary is also a qualified beneficiary – that they are/would be a first time homebuyer. Financial institutions will continue issuing 1099’s where interest was earned. Legislation however, specifically forbids the Dept. of Revenue from making any rules that would burden financial institutions with any compliance measures.

Colorado becomes only the third state in the nation to adopt this new savings program and the Dept. of Revenue is still determining account holder forms and documentation necessary to include when filing an account holder’s state income taxes. For account holder compliance purposes, it’s recommended to maintain the following documents:

  • Name and addresses of the financial institution that maintains the account
  • Names of any other individuals with an ownership interest in the account
  • Account number or identifier
  • Type of principal (cash or marketable securities) contributed to the account
  • The amount of principal and interest in the account as of the last day of the taxable year
  • Amount of any withdrawals from the account during the taxable year
  • Account beneficiary or beneficiaries

If an individual intends to designate more than one account as a first-time home buyer savings account, he or she is required to submit a separate attachment for each account. Once an account has been designated as an FHSA, the account will remain a first time home buyer savings account until it is closed or its status as a first time home buyer savings account is terminated.

An account owned by two or more individuals may be designated as a first time home buyer savings account. An account owned by two or more individuals will only be considered a first time home buyer savings account for the individuals with an ownership interest in such account who have designated it as a first time home buyer savings account.

Scenarios to consider: 

Funding for a child – Parents put $10,000 into a mutual fund that they will use to help their son buy his first home. The money grows over time and when their son is 26, he decides to buy a home. They sell the shares in the fund – now worth $18,500 – and give it to their son to help with his down payment.

Normally they would pay state tax on the $8,500 in earnings but they file a FHSA form with their Colorado taxes and don’t have to pay a cent in state taxes.

Taxes on the interest – A couple take $1,000 they received as a wedding gift and open a money market account at their bank. They plan to use it towards the closing costs of their first home. Over the next several years they add money when they can, eventually using it towards their closing costs when they buy their first home.

Each year the couple filed their Colorado taxes, they claimed FHSA status as part of their state returns, so they are exempt from state tax for all the earnings on that account so long as they use the funds for an “eligible expense.”

Changing your mind – Mark decides to start putting money away for a first home when he graduates college. He opens a high-yield savings account with a couple hundred dollars and adds to it when he can over the next decade. The account grows. Each year Mark files an FHSA form with the Dept. of Revenue so he doesn’t have to pay Colorado tax on the interest he’s earned. Then Mark marries Emma, and Emma already owns a house. He won’t need the money after all. They decide to use it for a vacation instead.

Because Mark used the money for a non-eligible purpose – the vacation – Mark must now pay the tax recapture on the 10-years of earnings on the account, as well as a 10% penalty on the amount of the earnings over that 10-year period.