New Jersey Pitches New Savings Accounts for First-Time Homebuyers

New Jersey Democrats have proposed an idea to create special savings accounts for first-time homebuyers that will allow them to accrue tax benefits while they save for their first home.

It's part of a larger housing tax package the state Legislature is advancing that also includes tax changes and a local ban on institutional investors.

Four members of the state Senate's Democrat majority introduced the bill in January. It was favorably reported out of its Community and Urban Affairs Committee Thursday. It next heads to the Senate Budget and Appropriations Committee.

"Homeownership is one of the most effective ways to build wealth and long-term stability," state Sen. Troy Singleton said in a release Thursday. "This proposal provides first-time homebuyers with a practical, tax-advantaged way to save, making it easier for more people to achieve the dream of owning a home and invest in their future.”

The state-by-state housing affordability report card from Realtor.com® currently gives New Jersey a C-.

Special accounts for homebuyers

Bill S-1756 would authorize New Jersey Housing and Mortgage Finance Agency to work with lenders to create the special savings accounts. Under the terms in the bill, a certified eligible first-time homebuyer would be able to deposit up to $15,000 a year, and $75,000 over a lifetime.

The accounts would receive a 5% income tax credit on the annual contributions. They would not pay taxes on the interest earned if the funds are used for eligible home purchases. As proposed, the accounts have a balance cap of $150,000.

Legislators want guardrails for the accounts, too. Applicants must earn less than $175,000 a year to qualify and must have no recent history of home ownership. They will also need to complete a first-time homebuyer education course, with annual reporting requirements.

Withdrawals would bring a 10% tax penalty unless there is proof of hardship like death or disability.

“This bill provides a clear, structured path to help them move toward homeownership," said state Sen. Vin Gopal, the bill's other sponsor. "It levels the playing field by boosting first-time buyers and encouraging long-term financial planning.”

Virginia set up a similar concept in 2015, and Colorado in 2016. Virginia's accounts only allow $50,000 in total principal. Colorado's accounts allow slightly lower annual contributions, with a taxable income deduction on the interest. Both of those accounts also cap the tax benefit at $150,000.

Larger affordability questions remain

New Jersey rolled out a package of other bills aimed at housing and other affordability issues at the same time.

Another bill would help the state establish an incentive for first-time homebuyers to get a zero-interest, forgivable loan of up to $5,000 from the Housing and Mortgage Finance Agency.

That same bill would place new restrictions on institutional investors who attempt to purchase single-family homes. That move follows the lead of the Trump administration and several other state governments. It threatens up to $60,000 in fines for investors who bid on a house in the first 90 days it's on the market.

And, the state is considering altering its property tax exemptions, which legislators say will reduce localities' needs to raise money through property taxes. There's been a multistate groundswell against property taxes in recent months.

Still another bill aims to help the state's agencies coordinate to provide housing for every unhoused veteran in the state.