Unlocking Homeownership: A Tax-Free Saving Advantage in Maryland and Virginia
Your Guide to State-Sponsored Homebuyer Savings Accounts
A Smarter Way to Save for Your First Home
Buying a home—especially your first—is one of the biggest financial decisions you’ll ever make. But what if your state offered a way to make saving easier and more tax-efficient? That’s exactly what Maryland and Virginia have done with their Homebuyer Savings Account (HBSA) programs. These state-sponsored plans allow first-time buyers to set aside money for home-related expenses with valuable tax benefits.
This guide dives into how each state's program works, what the rules are, and how to take full advantage of this opportunity to make homeownership more accessible.
What is a Homebuyer Savings Account?
A Homebuyer Savings Account (HBSA) is a special type of account that helps first-time homebuyers save for a home by offering state tax incentives. These accounts don’t impact your federal taxes, but they can reduce what you owe in Maryland or Virginia, depending on where you live and where you plan to buy.
You can open an HBSA at your preferred financial institution—such as a bank, credit union, or brokerage—and designate it for home purchase savings. Funds in the account must be used for qualifying expenses like a down payment, closing costs, or loan-related fees.
Maryland’s Homebuyer Savings Account: Benefits and Limitations
Key Benefits:
Deduct up to $5,000 per year in contributions from Maryland state income taxes.
Lifetime deduction limit: $50,000.
Any interest or capital gains earned in the account are not taxed by the state.
Eligibility & Rules:
Must be a first-time homebuyer (haven’t owned a home in the past 7 years).
Funds must be used to buy a primary residence in Maryland.
Qualified expenses include down payment, closing costs, and related fees.
File a designation form with the Maryland Comptroller when you open the account.
Use the funds within 15 years to avoid penalties.
Limitations:
Contributions are not deductible on federal income taxes.
Penalties apply if funds are used for non-qualifying expenses.
Record-keeping is essential to ensure tax benefits are maintained.
Virginia’s First-Time Homebuyer Savings Account: Benefits and Limitations
Key Benefits:
Earnings (interest, dividends, capital gains) on the account are exempt from Virginia state income tax.
No cap on contributions, but tax exemption on earnings is capped at $50,000.
Eligibility & Rules:
Must be used for the purchase of a primary residence in Virginia.
File the appropriate designation form with the Virginia Department of Taxation.
Qualified expenses include down payment, closing costs, origination fees, and inspection fees.
Funds must be used within 20 years of opening the account.
Limitations:
No immediate state tax deduction on contributions.
Non-qualified use may result in tax penalties and recapture of benefits.
Contributions are also not deductible on federal taxes.
Maryland vs. Virginia: Which Program is Better for You?
It depends on your personal goals and timeline:
Maryland gives you immediate tax relief with deductible contributions.
Virginia offers long-term tax-free growth, making it ideal for longer savings horizons.
If you’re planning to buy a home in just a few years, Maryland’s upfront deductions might be more valuable. If you’re investing the funds and expect to buy down the line, Virginia’s tax-free growth could work in your favor.
How to Set Up a Homebuyer Savings Account
Open an eligible account (savings, investment, or money market) with your preferred financial institution.
Start saving—track contributions.
File the necessary designation form with your state’s department of revenue during tax time:
Continue saving—tracking contributions and ensure all funds are used for qualified home-buying expenses.
Take Advantage of a Rare Tax Break
In a time when affordability is a major hurdle, Maryland and Virginia offer a rare opportunity: a way to save smarter while earning tax breaks. Whether you're looking for immediate savings or long-term growth, a Homebuyer Savings Account can move you one step closer to homeownership.
If you're thinking about buying your first home in Maryland or Virginia, don’t leave this money-saving tool on the table. Start your account today, and make every dollar you save work harder for your future.
Let us know if you'd like help setting up your HBSA or planning your path to homeownership. The Ownrs Club is here to help you make smart, confident real estate decisions.