Q: WHAT KINDS OF ACCOUNTS CAN BE FHSAS?
A: Almost any account you have with a
financial institution: mutual funds, CDs, brokerage (stocks, bonds, etc.),
money markets, insurance, even a savings account. FHSAs can also include
Q: HOW MUCH CAN I PUT IN A FHSA ACCOUNT?
A: You can contribute up to a total of
$50,000 in principal, and the account can grow in value up to $150,000.
There will be an annual contribution cap of $14,000 ($28,000 if filing
jointly). There is no limit on how long the account can exist.
Q: WHAT CAN I USE THE MONEY FOR?
A: An FHSA account can be used to pay for
just about anything related to closing on a home — anything included on
the settlement statement: closing costs, inspections, lender fees, etc.
These are all considered “eligible costs.”
Q: WHAT IS CONSIDERED A FIRST‐TIME HOME BUYER?
A: A first‐time buyer is: Someone who
has never purchased a home before. That includes single‐family homes,
condos, co-ops, townhouses, or mobile homes. (It does not include land or
commercial property.) If you owned a home at some point but did not
purchase one — e.g., if you inherited — you can still qualify. It also
includes someone divorced who may previously have owned a home with their
Q: CAN I USE THE MONEY TO PAY FOR SOMEONE ELSE’S
A: Yes. As long as the person you’re
giving the money to (e.g., child, grandchild, niece, and even a close
friend) is a first‐time homebuyer.
Q: CAN I USE MY FHSA FUNDS IF I’M BUYING A HOME
WITH SOMEONE WHO IS NOT A FIRST‐TIME BUYER?
A: Yes, as long as you qualify as a
Q: What if I move out of Colorado?
A: Eligible costs only apply to a first
time home purchase in Colorado.
Q: What if I die?
A: The FHSA account would be handled like
any other part of your estate, but the beneficiary of the account would
to pay taxes on the assets in the account. This is sometimes referred to
as a “stepped‐up basis,” which generally happens
when a person dies and real estate transfers to his heirs.
There are lots of scenarios or “use cases” where a FHSP makes
sense. Here are several simple scenarios:
Funding for a child
Phillip and Leigh put $10,000 into a mutual fund that they will use to
help their son buy his first home. The money grows over the years. 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
Alfonzo and Patricia 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, Alfonzo and Patricia filed their Colorado taxes, they
claimed FHSA status as part of their state tax 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 cost”.
Changing your mind
Emma decides to start putting money away for a first home when she
graduates college. She opens a high‐yield savings
account with a few hundred dollars and adds to it when she can over the
next 12 years. The account grows. Each year, Emma files an FHSA form with
the Department of Revenue so she doesn’t have to pay Colorado tax on the
interest she’s earned. Then Emma marries Sam, and Sam already owns a
house. She won’t need the money after all. They decide to use it for a
vacation instead. Because Emma used the money for a “non‐eligible”
purpose — the vacation — Emma must now pay the back taxes on the 12 years
of earnings on the account, as well as a five percent penalty on the
amount of the earnings over that 12‐year period.
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