What the account actually is
A Maryland First-Time Homebuyer Savings Account is not a product. It is a designation. You open an ordinary account at a bank or credit union, use it for nothing but your future home purchase, and then designate it as a first-time homebuyer savings account on your Maryland income tax return. That is the whole setup.
Some banks advertise an account by that name, which is fine but not required. The law says any account at a financial institution qualifies as long as it is established for the sole purpose of paying or reimbursing eligible costs for the purchase of a home in Maryland by the account holder. What makes it count is how you use it and what you put on your return, not the label on the statement.
Open a dedicated savings account. Put up to $5,000 a year in it. Subtract that $5,000, plus whatever interest the account earns, from your Maryland taxable income. Spend it on the down payment and closing costs of a Maryland home within 15 years.
Who counts as a first-time homebuyer
Maryland's definition is narrower than the plain English phrase and broader than most people assume. A first-time homebuyer is an individual who is a Maryland resident and who has not owned or purchased, either individually or jointly, a home in the State in the last 7 years.
Three things follow from that sentence, and they matter:
- It is a 7-year lookback, not a lifetime test. If you owned a house in Maryland years ago and have been renting since, you can become a first-time homebuyer again for this purpose.
- It asks about ownership in Maryland. The statute says a home in the State. Owning a home somewhere else is not what this test is measuring, though your own facts are worth reviewing before you count on that.
- It is tested per person. If one spouse owned a Maryland home within the last 7 years and the other did not, that does not automatically wipe out the second spouse's own account. If the two of you owned that home jointly, though, you both fail the test.
You also have to be a Maryland resident, and the home you eventually buy has to be in Maryland.
What you can subtract, and for how long
The subtraction has two pieces and three limits.
The two pieces: up to $5,000 of what you contributed to the account during the year, and the earnings on the account for the year, meaning interest and other income on the principal. The earnings piece is not capped at $5,000. It sits on top.
The three limits:
- You may claim it for a period not to exceed 10 years. Ten years at $5,000 is $50,000 of contributions.
- Total earnings claimed may not exceed $50,000 during that 10-year period.
- The principal and earnings have to stay in the account until you withdraw for eligible costs. Moving the money to a different first-time homebuyer savings account is allowed. Spending it on something else is not.
Two more structural rules. No individual may hold more than one account. And two people may jointly establish one account only if both are first-time homebuyers and they file a joint Maryland return. Comptroller regulations add the piece most couples care about: each spouse on a joint return who is the sole account holder of their own account may claim up to the full subtraction, limited to their own contributions and their own account's earnings. In other words, two qualifying spouses with two accounts can be working on $10,000 a year between them.
What it is worth in real dollars
This is a subtraction, not a credit, so it comes off your income rather than your tax bill. The value is your Maryland marginal rate times the amount you subtract, and Maryland's marginal rate has two layers: the state rate and your county's local income tax.
For 2026, most first-time buyers land in the 4.75 percent state bracket, which covers Maryland taxable income from $3,001 to $100,000 for a single filer. Local rates run from 2.25 percent to 3.30 percent depending on where you live. Baltimore County and Baltimore City are both at 3.20 percent.
| A full $5,000 contribution | Baltimore County (3.20% local) | A 2.25% local rate county |
|---|---|---|
| State tax saved at 4.75% | $237.50 | $237.50 |
| Local tax saved | $160.00 | $112.50 |
| Total saved, one year | about $398 | about $350 |
| If you do it 10 years running | about $3,975 | about $3,500 |
Then add the earnings piece. Interest in a savings account is federally taxable and normally Maryland taxable too. Inside a designated account, you subtract it on the Maryland side, so the account effectively grows free of Maryland income tax while you save.
Is $400 a year life changing? No. Is it worth roughly ten minutes of setup and a form line you were going to be filing anyway? For most people saving toward a first house, yes. And it costs you nothing in flexibility as long as the money really is earmarked for the house.
What the money can be spent on
Eligible costs are the down payment and allowable closing costs for the purchase of a home in Maryland by the account holder. Allowable closing costs means a disbursement listed on the settlement statement, which is a useful, concrete standard: if it shows up as a disbursement on your settlement statement, it is in play.
A home here means single-family residential real property, including a mobile home. The purchase has to be in Maryland.
The statute lets the account be used for "paying or reimbursing" eligible costs, so a reimbursement after settlement is contemplated rather than forbidden. Do not improvise on this one. Tell your lender and your settlement provider up front that you are using a first-time homebuyer savings account, and keep the paperwork clean, because you are going to hand the Comptroller a detailed accounting of it.
The rules that bite
Every piece of this that goes wrong goes wrong in one of four ways.
- The 15-year clock. You have to use the funds for eligible costs within 15 years of the day the account was established. Anything you claimed a subtraction for and have not spent on eligible costs by December 31 of that fifteenth year gets taxed as ordinary income.
- The 10 percent penalty. Withdraw funds you claimed a subtraction for and spend them on something other than eligible costs, and two things happen: the money is taxed as ordinary Maryland income for the year of the withdrawal, and you owe Maryland a penalty equal to 10 percent of the amount withdrawn.
- The 60-day rollover window. You are allowed to move the account to another institution or another account. Comptroller regulations give you 60 days from withdrawal to redeposit into a new first-time homebuyer savings account. Miss that window and it is treated as a non-qualifying withdrawal, tax and penalty included.
- Commingling. The account has to exist for the sole purpose of the home purchase. The moment it doubles as your vacation fund, you have handed a reviewer an easy argument.
Two humane exceptions worth knowing. A disbursement of account assets in a bankruptcy filing does not trigger the tax and penalty. And a financial institution's administrative fees, if they were disclosed in writing when you opened the account and do not benefit you, are not treated as a withdrawal.
How to claim it on your Maryland return
The subtraction goes on Form 502SU, line ww, which feeds your Form 502. On the 2025 form, line ww is split in two: ww1 for the amount contributed and ww2 for the interest earned, with line ww carrying the total.
The part people miss is the paperwork the Comptroller requires alongside it:
- File a list of transactions for the account with the return on which you claim the subtraction, and every year afterward until the funds are used, whether or not you claim a subtraction in those years.
- When you withdraw the funds, submit a detailed account of the eligible costs the money went to, plus a statement of what is left in the account. That means copies of your financial institution's statements and the settlement statement from the purchase.
Practically, that means your account statements are part of your tax file from the year you open the account until the year you buy. If you e-file, those transaction lists need to be attached to the return, not left in a drawer. This is the piece I see missed most often, and it is the piece that turns a clean subtraction into correspondence.
The account is designated on your return, so the practical sequence is: open the account, fund it during the year, then designate and claim when you file. Keep the account statements as you go.
Mistakes I see
- Assuming a brokerage account works. The law borrows its definition of a "financial institution" from Maryland's banking law, which covers banks, savings institutions, and credit unions. A plain savings or money market account there is the safe choice.
- Letting family gifts do double duty. Relatives can put money into your account and it can fund your purchase, but a person other than the account holder who transfers money in is not entitled to the subtraction, and the subtraction covers what you contributed. Gifts help your down payment, not your deduction.
- Opening two accounts. One account per individual. If you want a second bucket, that is what your other savings are for.
- Treating it as a federal break. There is no federal deduction here. Your contributions are after-tax money and the interest is still federally taxable. This is a Maryland-only benefit.
- Forgetting the annual transaction list in the years between opening the account and buying the house.
The other Maryland first-time buyer break
While we are here: Maryland also gives first-time buyers a break on the state transfer tax. On a sale of improved residential real property to a first-time Maryland home buyer who will occupy it as a principal residence, the state transfer tax rate drops to 0.25 percent and is paid entirely by the seller. On a $400,000 house, that is $1,000 of transfer tax that moves off your side of the settlement sheet.
Watch the definitions, because they are not the same. For the transfer tax, a first-time Maryland home buyer is someone who has never owned residential real property in Maryland that was their principal residence. For the savings account, it is a 7-year lookback. You can qualify for one and not the other. And if you are carrying student loans while you save, Maryland has a separate student loan debt relief tax credit worth up to $5,000 that you have to apply for by September 15 each year.
Where these rules come from
This is a niche corner of Maryland law, so here is where to read it yourself. The subtraction sits in Maryland's income tax law and has been available since the 2021 tax year. The Comptroller's regulations fill in the details the law leaves out, and the form you claim it on is Form 502SU. Maryland's Department of Housing and Community Development publishes a plain-English overview at marylandhomeownership.com.
Rates and form line references above are for 2026 and the 2025 Form 502SU. Line letters and rates move, so check the year you are actually filing.
Frequently asked questions
Do I have to open a special first-time homebuyer account at a bank?
No. Any account at a financial institution can qualify, as long as it is used for the sole purpose of paying or reimbursing eligible costs for buying a home in Maryland. Some banks market an account by that name, but you are not required to use one. You designate the account as a first-time homebuyer savings account on your Maryland income tax return, not at the bank.
I owned a home in another state. Can I still qualify in Maryland?
Possibly. Maryland defines a first-time homebuyer as a resident who has not owned or purchased, individually or jointly, a home in the State in the last 7 years. The test looks at ownership in Maryland, so owning a home in another state is not automatically disqualifying. Have your specific facts reviewed before you rely on this.
Can my parents contribute to the account?
They can put money into the account, and that money can go toward your down payment. They cannot claim the subtraction, and neither can you for their deposits. The subtraction covers up to $5,000 of the amount contributed by the account holder, plus the account's earnings.
Can my spouse and I each claim the subtraction?
Yes, if you each have your own account and each of you qualifies as a first-time homebuyer. Comptroller regulations say each spouse on a joint return who is the sole account holder of an account may claim up to the full subtraction, limited to their own contributions and earnings. Two first-time buyers who file jointly may also establish one joint account instead. No individual may hold more than one account.
What happens if I never buy a house?
If you pull the money out for anything other than eligible costs, the amount you subtracted is taxed as ordinary Maryland income in the year of withdrawal and you owe a penalty equal to 10 percent of the amount withdrawn. If the money simply sits there, any funds you claimed a subtraction for and have not spent on eligible costs by December 31 of the fifteenth year are taxed as ordinary income.
How much does the Maryland First-Time Homebuyer Savings Account actually save?
It is a subtraction from income, not a credit, so the value is your Maryland marginal rate times the amount subtracted. For 2026, most buyers are in the 4.75 percent state bracket, and local income tax rates run from 2.25 percent to 3.30 percent. In Baltimore County at 3.20 percent, a full $5,000 contribution saves roughly $398 of Maryland tax for the year.
Does the house have to be in Maryland?
Yes. Eligible costs are the down payment and allowable closing costs for the purchase of a home in Maryland by the account holder. A home means single-family residential real property, including a mobile home.
Saving for a first house in Maryland?
I am an Enrolled Agent based in Pikesville, and this is exactly the kind of state-level detail that gets left on the table. If you are saving toward a purchase, I can tell you whether you qualify, set up the recordkeeping so the subtraction holds up, and claim it correctly year after year until you close.
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