Bill Text: IA SF425 | 2017-2018 | 87th General Assembly | Introduced
Bill Title: A bill for an act providing for the establishment of first-time homebuyer savings accounts in Iowa, including related individual income tax exemptions, and including applicability provisions. (Formerly SSB 1056; See SF 505.)
Sponsorship: Committee Bill
Status: (Introduced - Dead) 2017-04-05 - Subcommittee recommends amendment and passage. [SF425 Detail]
Download: Iowa-2017-SF425-Introduced.html
Senate File 425 - Introduced SENATE FILE BY COMMITTEE ON STATE GOVERNMENT (SUCCESSOR TO SSB 1056) A BILL FOR 1 An Act providing for the establishment of first=time homebuyer 2 savings accounts in Iowa, including related individual 3 income tax exemptions, and including applicability 4 provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: TLSB 2280SV (3) 87 mm/rj PAG LIN 1 1 Section 1. Section 422.7, Code 2017, is amended by adding 1 2 the following new subsection: 1 3 NEW SUBSECTION. 41. a. Subject to the restrictions in 1 4 paragraph "b", subtract the sum of the following amounts: 1 5 (1) The amount of contributions made by an account holder 1 6 during the tax year to the account holder's first=time 1 7 homebuyer savings accounts, not to exceed the following annual 1 8 limit: 1 9 (a) (i) For married taxpayers who file a joint return and 1 10 maintain a joint first=time homebuyer savings account, four 1 11 thousand dollars. 1 12 (ii) For any other account holder, two thousand dollars. 1 13 (b) For the tax year beginning in the 2018 calendar year 1 14 and for each subsequent tax year, the director shall multiply 1 15 each dollar amount set forth in subparagraph subdivisions (i) 1 16 and (ii) by the latest cumulative inflation factor, shall 1 17 round off the resulting product to the nearest one dollar, 1 18 and shall incorporate the result into the income tax forms 1 19 and instructions for each tax year. For purposes of this 1 20 subparagraph division, "cumulative inflation factor" means the 1 21 product of the annual inflation factor for the 2018 calendar 1 22 year and all annual inflation factors for subsequent calendar 1 23 years as determined by section 422.4, subsection 1, paragraph 1 24 "a". The cumulative inflation factor applies to all tax years 1 25 beginning on or after January 1 of the calendar year for 1 26 which the latest annual inflation factor has been determined. 1 27 Notwithstanding any other provision, the annual inflation 1 28 factor for the 2018 calendar year is one hundred percent. 1 29 (2) To the extent included, income from interest and 1 30 earnings received from the account holder's first=time 1 31 homebuyer savings accounts. 1 32 b. (1) The subtraction in paragraph "a" shall not exceed 1 33 the following aggregate lifetime limit: 1 34 (a) For married taxpayers who file a joint return and 1 35 maintain a joint first=time homebuyer savings account, an 2 1 amount equal to the product of the deductible amount determined 2 2 for the year in paragraph "a", subparagraph (1), subparagraph 2 3 division (a), subparagraph subdivision (i), multiplied by ten. 2 4 (b) For any other account holder, an amount equal to the 2 5 product of the deductible amount determined for the year in 2 6 paragraph "a", subparagraph (1), subparagraph division (a), 2 7 subparagraph subdivision (ii), multiplied by ten. 2 8 (2) The subtraction in paragraph "a" shall not be allowed to 2 9 an account holder upon one of the following dates, whichever 2 10 occurs first: 2 11 (a) January 1 of the tenth calendar year after the calendar 2 12 year during which the account holder first opened a first=time 2 13 homebuyer savings account. 2 14 (b) The date on which funds within an account holder's 2 15 first=time homebuyer savings account are withdrawn for purposes 2 16 other than the payment or reimbursement of the designated 2 17 beneficiary's eligible home costs in connection with a 2 18 qualified home purchase. Any amount transferred between 2 19 different first=time homebuyer savings accounts of the same 2 20 account holder by a person other than the account holder 2 21 shall not be considered a withdrawal for purposes of this 2 22 subparagraph division (b). 2 23 c. (1) Add, to the extent previously deducted under 2 24 paragraph "a", subparagraph (1), the amount withdrawn during 2 25 the tax year from an account holder's first=time homebuyer 2 26 savings account for purposes other than the payment or 2 27 reimbursement of the designated beneficiary's eligible home 2 28 costs in connection with a qualified home purchase. 2 29 (2) For purposes of this paragraph "c", any amount remaining 2 30 in an account holder's first=time homebuyer savings account 2 31 on January 1 of the tenth calendar year after the calendar 2 32 year during which the account holder first opened a first=time 2 33 homebuyer savings account shall be considered immediately 2 34 withdrawn under subparagraph (1). 2 35 (3) For purposes of this paragraph "c", the transfer of 3 1 amounts between different first=time homebuyer accounts of the 3 2 same account holder by a person other than the account holder 3 3 shall not cause such transfer to be considered a withdrawal 3 4 under subparagraph (1). 3 5 d. For any amount considered a withdrawal required to be 3 6 added to net income pursuant to paragraph "c", the account 3 7 holder shall be assessed a penalty equal to ten percent of 3 8 the amount of the withdrawal. The penalty shall not apply 3 9 to withdrawals made by reason of the death or disability of 3 10 the account holder, or to withdrawals made pursuant to a 3 11 garnishment, levy, or other order, including but not limited to 3 12 an order in bankruptcy following a filing for protection under 3 13 the federal bankruptcy code, 11 U.S.C. {101 et seq. 3 14 e. For purposes of this subsection, "account holder", 3 15 "designated beneficiary", "eligible home costs", "first=time 3 16 homebuyer savings account", and "qualified home purchase" mean 3 17 the same as defined in section 541B.2. 3 18 Sec. 2. Section 422.9, subsection 2, Code 2017, is amended 3 19 by adding the following new paragraph: 3 20 NEW PARAGRAPH. k. Subtract interest, taxes, and other 3 21 miscellaneous expenses deductible for federal income tax 3 22 purposes to the extent such amounts are eligible home costs 3 23 in connection with a qualified home purchase that were paid 3 24 or reimbursed from funds in a first=time homebuyer savings 3 25 account. For purposes of this paragraph, "eligible home costs", 3 26 "first=time homebuyer savings account", and "qualified home 3 27 purchase" mean the same as defined in section 541B.2. 3 28 Sec. 3. NEW SECTION. 541B.1 Short title. 3 29 This chapter may be cited as the "Iowa First=Time Homebuyer 3 30 Savings Account Act". 3 31 Sec. 4. NEW SECTION. 541B.2 Definitions. 3 32 As used in this chapter, unless the context otherwise 3 33 requires: 3 34 1. "Account holder" means an individual who establishes, 3 35 either individually or jointly with the individual's spouse, 4 1 a first=time homebuyer savings account pursuant to section 4 2 541B.3. 4 3 2. "Department" means the department of revenue. 4 4 3. "Designated beneficiary" means an individual meeting the 4 5 requirements of section 541B.3, subsection 2, and designated 4 6 by an account holder as beneficiary of the account holder's 4 7 first=time homebuyer savings account pursuant to section 4 8 541B.3, subsection 2. 4 9 4. a. "Eligible home costs" means the following: 4 10 (1) The down payment for the purchase of a single=family 4 11 residence in Iowa by a designated beneficiary. 4 12 (2) A cost, fee, tax, or payment incurred by, or charged 4 13 or assigned to, a designated beneficiary for the purchase of a 4 14 single=family residence in Iowa, and listed on the statement 4 15 of receipts and disbursements for the sale, including any 4 16 statement prescribed by 12 C.F.R. {1026.38, as amended. 4 17 b. "Eligible home costs" includes any United States veterans 4 18 administration funding fee incurred by, or charged or assigned 4 19 to, a designated beneficiary in connection with a veterans 4 20 administration home loan guaranty program. 4 21 5. "Financial institution" means a state or federally 4 22 chartered bank, savings and loan association, credit union, or 4 23 trust company in this state. 4 24 6. "First=time homebuyer" means an individual who is a 4 25 resident of Iowa and who has not owned or purchased, either 4 26 individually or jointly, a single=family residence for a period 4 27 of three years prior to the date of the qualified home purchase 4 28 for which the eligible home costs are paid or reimbursed from a 4 29 first=time homebuyer savings account. 4 30 7. "First=time homebuyer savings account" means an account 4 31 that meets the requirements of sections 541B.3 and 541B.4 and 4 32 that was established for the purpose of paying or reimbursing a 4 33 qualified beneficiary's eligible home costs in connection with 4 34 a qualified home purchase. 4 35 8. "Individual" means a natural person. 5 1 9. "Qualified home purchase" means, with respect to a 5 2 first=time homebuyer savings account, the purchase of a 5 3 single=family residence in Iowa by the account's designated 5 4 beneficiary after the date the account holder first opened a 5 5 first=time homebuyer savings account. 5 6 10. "Resident" means the same as defined in section 422.4. 5 7 11. "Single=family residence" means a single=family 5 8 residence owned and occupied by a designated beneficiary as the 5 9 designated beneficiary's principal residence, including but not 5 10 limited to a manufactured home, mobile home, condominium unit, 5 11 or cooperative. 5 12 Sec. 5. NEW SECTION. 541B.3 First=time homebuyer savings 5 13 account. 5 14 1. Establishment of account. 5 15 a. Beginning January 1, 2018, an individual may open an 5 16 interest=bearing savings account with a financial institution 5 17 and designate the entire account as a first=time homebuyer 5 18 savings account for the purpose of paying or reimbursing a 5 19 designated beneficiary's eligible home costs in connection with 5 20 a qualified home purchase. The first=time homebuyer savings 5 21 account designation shall be made no later than April 30 of the 5 22 year following the tax year during which the account is opened, 5 23 on forms provided by the department. 5 24 b. A married couple electing to file a joint Iowa individual 5 25 income tax return may establish a joint first=time homebuyer 5 26 savings account. Married taxpayers electing to file separate 5 27 tax returns or separately on a combined tax return for Iowa tax 5 28 purposes shall not establish or maintain a joint first=time 5 29 homebuyer savings account. 5 30 c. An individual may establish more than one first=time 5 31 homebuyer savings account, provided each account has a 5 32 different designated beneficiary. 5 33 2. Designation of beneficiary. 5 34 a. The account holder shall designate one individual as 5 35 beneficiary of the first=time homebuyer savings account. The 6 1 designation shall be made on forms provided by the department 6 2 and no later than April 30 of the year following the tax year 6 3 during which the account is opened. The account holder may 6 4 change the designated beneficiary of the first=time homebuyer 6 5 savings account at any time. 6 6 b. The account holder and designated beneficiary of 6 7 a first=time homebuyer savings account may be the same 6 8 individual. 6 9 c. An individual may be the designated beneficiary of more 6 10 than one first=time homebuyer savings account. 6 11 d. The designated beneficiary of a first=time homebuyer 6 12 savings account must be a first=time homebuyer. 6 13 Sec. 6. NEW SECTION. 541B.4 Account administration ==== 6 14 account holder responsibilities. 6 15 1. Account contributions. Contributions to a first=time 6 16 homebuyer savings account may be made by any person in the form 6 17 of cash. There is no limitation on the amount of contributions 6 18 that may be made to or retained in a first=time homebuyer 6 19 savings account. 6 20 2. Account expenses. The account holder shall not use funds 6 21 held in a first=time homebuyer savings account to pay expenses, 6 22 if any, of administering the account, except that all fees and 6 23 charges assessed by the financial institution may be deducted 6 24 from the account by the financial institution where the account 6 25 is held. 6 26 3. Required reports. The account holder shall submit the 6 27 following information to the department: 6 28 a. An annual report for the first=time homebuyer savings 6 29 account on forms furnished by the department. The report shall 6 30 be included with the Iowa income tax return of the account 6 31 holder. 6 32 b. A copy of the federal internal revenue service form 6 33 1099, or other similar federal internal revenue service income 6 34 reporting form, if any, issued for the first=time homebuyer 6 35 savings account to the account holder by the financial 7 1 institution where the account is held. The form shall be 7 2 included with the Iowa income tax return of the account holder. 7 3 c. Upon a withdrawal of funds from a first=time homebuyer 7 4 savings account, a transaction report on forms furnished by the 7 5 department. 7 6 4. Withdrawal of funds. The account holder may withdraw 7 7 funds from a first=time homebuyer savings account at any time. 7 8 Sec. 7. NEW SECTION. 541B.5 Financial institution 7 9 protections. 7 10 Nothing in this chapter shall be construed to require a 7 11 financial institution to do any of the following, or to be 7 12 responsible or liable for any of the following: 7 13 1. Designate or label within the financial institution's 7 14 account contracts, systems, or in any other manner, an account 7 15 as a first=time homebuyer savings account. 7 16 2. Ascertain or verify the purpose of a withdrawal of funds 7 17 from a first=time homebuyer savings account, or track the 7 18 destination or use of the withdrawn funds. 7 19 3. Allocate funds in a first=time homebuyer savings account 7 20 to a designated beneficiary or among joint account holders. 7 21 4. Report any information to the department or any other 7 22 governmental agency. 7 23 5. Determine or ensure that an account satisfies the 7 24 requirements to be a first=time homebuyer savings account. 7 25 6. Determine or ensure that funds withdrawn from a 7 26 first=time homebuyer savings account are used for the payment 7 27 or reimbursement of a designated beneficiary's eligible home 7 28 costs in connection with a qualified home purchase. 7 29 7. Report or remit taxes or penalties related to the 7 30 ownership or use of a first=time homebuyer savings account. 7 31 8. Include the name of a beneficiary in the title of a 7 32 first=time homebuyer savings account, or document the change of 7 33 any beneficiary to a first=time homebuyer savings account. 7 34 Sec. 8. NEW SECTION. 541B.6 Tax considerations. 7 35 The state income tax treatment of a first=time homebuyer 8 1 savings account shall be as provided in section 422.7, 8 2 subsection 41, and section 422.9, subsection 2, paragraph "k". 8 3 Sec. 9. NEW SECTION. 541B.7 Rules and forms. 8 4 1. The department shall adopt rules to implement and 8 5 administer this chapter. 8 6 2. The department shall create and make available forms 8 7 to be used in complying with this chapter, including but not 8 8 limited to the following: 8 9 a. A form for designating an account as a first=time 8 10 homebuyer savings account pursuant to section 541B.3, 8 11 subsection 1, paragraph "a". 8 12 b. A form for designating an individual as beneficiary of 8 13 a first=time homebuyer savings account pursuant to section 8 14 541B.3, subsection 2, paragraph "a". 8 15 c. A first=time homebuyer savings account annual report 8 16 as required in section 541B.4, subsection 3, paragraph "a". 8 17 The report shall require, at a minimum, a list of transactions 8 18 occurring on the account during the tax year, and shall 8 19 identify any supporting documentation to be included with the 8 20 report or maintained by the taxpayer. 8 21 d. A transaction report as required in section 541B.4, 8 22 subsection 3, paragraph "c", which report shall require, at a 8 23 minimum, information regarding the eligible home costs to which 8 24 any withdrawn funds were applied in connection with a qualified 8 25 home purchase, and information regarding the amount of funds 8 26 remaining, if any, in a first=time homebuyer savings account. 8 27 Sec. 10. APPLICABILITY. The following provision or 8 28 provisions of this Act apply to tax years beginning on or after 8 29 January 1, 2018: 8 30 1. The section of this Act enacting section 422.7, 8 31 subsection 41. 8 32 2. The section of this Act enacting section 422.9, 8 33 subsection 2, paragraph "k". 8 34 EXPLANATION 8 35 The inclusion of this explanation does not constitute agreement with 9 1 the explanation's substance by the members of the general assembly. 9 2 This bill allows individuals, on or after January 1, 2018, 9 3 to open an interest=bearing savings account with a state 9 4 or federally chartered bank, savings and loan association, 9 5 credit union, or trust company in this state and designate the 9 6 account as a first=time homebuyer savings account (account) 9 7 for the purpose of financing the purchase of a single=family 9 8 residence in this state by a first=time homebuyer. "First=time 9 9 homebuyer" is defined in the bill to include Iowa residents who 9 10 have not owned a single=family residence for at least three 9 11 years prior to the home purchase for which the account's funds 9 12 are applied. "Single=family residence" is also defined in the 9 13 bill. The account may be established individually, or jointly 9 14 with a spouse if the married couple files a joint Iowa income 9 15 tax return. 9 16 In order to properly establish the account, the bill 9 17 requires the account holder to submit certain forms to the 9 18 department of revenue (department) designating the account as 9 19 a first=time homebuyer savings account, and designating one 9 20 beneficiary of the account (designated beneficiary). These 9 21 designation forms must be submitted no later than April 30 of 9 22 the year following the tax year during which the account is 9 23 opened. An individual may establish more than one account, 9 24 provided each account has a different designated beneficiary. 9 25 The account holder may change the designated beneficiary at any 9 26 time, and may designate himself or herself as the beneficiary. 9 27 In addition, an individual may be the designated beneficiary 9 28 of more than one account. The designated beneficiary must be 9 29 a first=time homebuyer. 9 30 Contributions to an account may be made in the form of cash 9 31 by any person and in any amount. There is no limitation on the 9 32 amount that may be retained in an account. In addition, the 9 33 account holder may withdraw funds from an account at any time. 9 34 Account funds shall not be used to pay expenses, if any, of 9 35 administering the account, except that fees and charges may be 10 1 deducted from the account by the financial institution where 10 2 the account is held. The bill requires an account holder to 10 3 submit certain reports to the department, including an annual 10 4 report for the account, a transaction report upon a withdrawal 10 5 of funds from the account, and a copy of any federal Internal 10 6 Revenue Service form 1099 or other similar income statement 10 7 issued for the account. 10 8 The bill provides protection to financial institutions from 10 9 being required to perform, and from being responsible or liable 10 10 for, certain activities as described in the bill with respect 10 11 to accounts. The bill requires the department to create the 10 12 forms required to be filed by account holders, and to adopt 10 13 rules to implement and administer the bill. 10 14 The bill provides two individual income tax incentives 10 15 relating to the accounts. First, an account holder is 10 16 allowed to deduct from the individual income tax the amount of 10 17 contributions made during the year by the account holder to 10 18 the account holder's accounts, not to exceed $2,000 per year, 10 19 or $4,000 for married taxpayers with a joint account. These 10 20 amounts are adjusted for inflation each calendar year. Second, 10 21 the bill exempts from the individual income tax any interest 10 22 or earnings received from the account holder's accounts. 10 23 The total amount that may be deducted or excluded from the 10 24 individual income tax for these two tax incentives cannot 10 25 exceed an aggregate lifetime limit of 10 times the maximum 10 26 deduction determined above for the applicable year ($20,000 for 10 27 2016), or double that amount for married taxpayers with a joint 10 28 account ($40,000 for 2016). The account holder's ability to 10 29 claim the tax incentives ends 10 tax years after the tax year 10 30 the account holder first opened an account, or on the date when 10 31 account funds are withdrawn for purposes other than the payment 10 32 or reimbursement of the designated beneficiary's eligible 10 33 home costs in connection with a qualified home purchase 10 34 (nonqualified withdrawal), whichever occurs first. "Eligible 10 35 home costs" and "qualified home purchase" are both defined in 11 1 the bill. Amounts transferred between different accounts of 11 2 the same account holder by a person other than the account 11 3 holder are not considered a nonqualified withdrawal that would 11 4 cause loss of the ability to claim the tax incentives. 11 5 The bill requires an account holder to add to net income for 11 6 purposes of calculating the individual income tax any amount of 11 7 a nonqualified withdrawal from an account to the extent it was 11 8 previously deducted as a contribution, but amounts transferred 11 9 between different accounts of the same account holder by 11 10 a person other than the account holder are not considered 11 11 nonqualified withdrawals. In addition, any amount remaining in 11 12 an account holder's account on January 1 of the 10th calendar 11 13 year after the calendar year during which the account holder 11 14 first opened an account is considered to be a nonqualified 11 15 withdrawal that must be added to net income for the tax year 11 16 beginning in that 10th year, to the extent it was previously 11 17 deducted as a contribution. Nonqualified withdrawals required 11 18 to be added to net income are also subject to a penalty equal 11 19 to 10 percent of the nonqualified withdrawal, unless the 11 20 withdrawal was made by reason of the death or disability of the 11 21 account holder, or was made pursuant to a garnishment, levy, 11 22 or other order, including an order in bankruptcy following a 11 23 filing for protection under the federal bankruptcy code. 11 24 Finally, the bill prohibits the amount of eligible home 11 25 costs in connection with a qualified home purchase that are 11 26 paid or reimbursed from funds in an account from being allowed 11 27 as an itemized deduction for Iowa individual income tax 11 28 purposes. 11 29 The tax provisions of the bill apply to tax years beginning 11 30 on or after January 1, 2018. LSB 2280SV (3) 87 mm/rj
