House Bill No. 5113 aims to provide personal income tax deductions for taxpayers who have received debt relief or had canceled debt related to student loans, medical expenses, and credit card debt. The bill amends Section 12-701 of the general statutes by repealing subparagraph (B) of subdivision (20) of subsection (a) and replacing it with provisions that allow for the subtraction of certain types of income from gross income for state tax purposes. Specifically, it permits taxpayers to deduct the amount of canceled debt from their taxable income, effective January 1, 2027, for taxable years commencing on or after that date. The bill also introduces deductions for contributions to first-time homebuyer savings accounts, with specified limits based on filing status, and allows for deductions on withdrawals from these accounts for eligible costs, contingent on income thresholds.

In addition to these provisions, HB5113 modifies the treatment of various income types under state law, including the inclusion of financial assistance from the Crumbling Foundations Assistance Fund and certain IRA distributions in gross income for federal tax purposes. The bill outlines a phased approach to the taxation of IRA distributions, gradually increasing the percentage that can be excluded from state income tax for individuals and married couples with adjusted gross incomes below specified thresholds. Key deletions from current law include the removal of specific language related to retirement benefits and adjustments to income thresholds for tax deductions. Overall, the bill is designed to provide tax relief to specific groups while ensuring clarity in the treatment of various income types, with a projected General Fund revenue loss of approximately $250,000 annually starting in FY 28.