Bill Text: IA SSB3205 | 2013-2014 | 85th General Assembly | Introduced

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Bill Title: A study bill for an act providing for the creation of first=time homebuyer savings accounts in Iowa, including related individual income tax exemptions, making penalties applicable, and including effective date and applicability provisions.

Spectrum: Unknown

Status: (N/A - Dead) 2014-03-10 - In Ways and Means [SSB3205 Detail]

Download: Iowa-2013-SSB3205-Introduced.html

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Senate Study Bill 3205 - Introduced
SENATE FILE _____
BY (PROPOSED COMMITTEE ON
WAYS AND MEANS BILL BY
CHAIRPERSON BOLKCOM)
A BILL FOR
An Act providing for the creation of first-time homebuyer
savings accounts in Iowa, including related individual
income tax exemptions, making penalties applicable, and
including effective date and applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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Section 1. NEW SECTION . 12I.1 Short title.
This chapter may be cited as the “Iowa First-time Homebuyer
Savings Account Act” .
Sec. 2. NEW SECTION . 12I.2 Definitions.
As used in this chapter, unless the context otherwise
requires:
1. “Account administrator” means one of the following:
a. A state or federally chartered bank, savings and loan
association, credit union, or trust company in this state.
b. A certified public accountant or licensed public
accountant, as those terms are defined in section 542.3.
c. An account holder.
2. “Account holder” means a first-time homebuyer who is a
resident of this state and who establishes, either individually
or jointly with the resident’s spouse who is also a first-time
homebuyer, a first-time homebuyer savings account. A person
ceases to be an account holder following the purchase of a
principal residence after the establishment of a first-time
homebuyer savings account.
3. “Business day” means a day other than a Saturday, Sunday,
or federal holiday.
4. “Eligible costs” means the down payment and allowable
closing costs for the purchase of a principal residence in Iowa
which principal residence is purchased after the establishment
of the first-time homebuyer savings account.
5. “First-time homebuyer” means an individual who has never
owned or purchased under contract for deed, either individually
or jointly, a single-family, owner-occupied residence,
including but not limited to a manufactured or mobile home that
is assessed and taxed as real estate or taxed under chapter
435 or taxed under other similar law of another state, or a
condominium unit.
6. “First-time homebuyer savings account” means an account
established with a state or federally chartered bank, savings
and loan association, credit union, or trust company in this
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state to finance the purchase of a principal residence in this
state.
7. “Principal residence” means a single-family,
owner-occupied residence in the state that will be the
principal place of residence of the account holder, whether
owned or purchased under contract for deed by the account
holder, individually or jointly. “Principal residence” includes
but is not limited to a manufactured home or mobile home that
is assessed and taxed as real estate or taxed under chapter
435, and a condominium unit.
8. “Resident” means the same as defined in section 422.4.
Sec. 3. NEW SECTION . 12I.3 First-time homebuyer savings
account.
1. Establishment.
a. A first-time homebuyer who is a resident of this
state may establish, either individually or jointly with
the resident’s spouse who is also a first-time homebuyer, a
first-time homebuyer savings account to finance the purchase
of a principal residence. Married taxpayers electing to file
separate tax returns or separately on a combined tax return
shall not establish or maintain a joint first-time homebuyer
savings account.
b. The account holder who establishes the first-time
homebuyer savings account, individually or jointly, is the
owner of the account.
c. A first-time homebuyer savings account shall be an
interest-bearing savings account.
d. A financial institution shall not be responsible for
the use or application of funds within a first-time homebuyer
savings account solely because the account is held at that
financial institution.
2. Use by account holder.
a. The account holder shall use the money in the first-time
homebuyer savings account for eligible costs related to the
purchase of a principal residence within ten years following
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the year in which the account is first established.
b. An account holder shall not contribute to a first-time
homebuyer savings account for a period exceeding ten years.
c. There is no limitation on the amount of contributions
that may be made to or retained in a first-time homebuyer
savings account.
3. Administration.
a. An account administrator shall administer the first-time
homebuyer savings account and has a fiduciary duty to the
person for whose benefit the account is administered.
b. Within thirty days after an account administrator begins
administering a first-time homebuyer savings account, the
account administrator shall notify, in writing, each account
holder on whose behalf the account administrator administers
the account of the date of the last business day of the
calendar year.
c. (1) An account administrator shall use funds held in a
first-time homebuyer savings account only for the purpose of
making withdrawals at the request of the account holder and for
paying the expenses of administering the account.
(2) If the account holder is subject to the withdrawal
penalty in section 422.7, subsection 57, paragraph “c” ,
subparagraph (1), the account administrator shall withhold the
amount of the penalty from the amounts withdrawn and shall
remit the amount to the department of revenue in the same
manner as provided in section 422.16, subsection 2.
(3) Notwithstanding section 422.16, subsection 4,
an account administrator shall not be held personally,
individually, or corporately liable for the failure to
withhold and remit a withdrawal penalty from a withdrawal made
at the request of the account holder for which the account
administrator relied in good faith on documentation submitted
by the account holder of eligible costs paid or owed by the
account holder in the calendar year. The burden of proving
that a withdrawal from a first-time homebuyer savings account
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was made for eligible costs is upon the account holder and not
upon the account administrator.
d. Within thirty days of being furnished proof of death of
the account holder, the account administrator shall distribute
any amount remaining in the first-time homebuyer savings
account to the estate of the account holder or to a transfer
on death or pay on death beneficiary of the account properly
designated by the account holder with the financial institution
at which the first-time homebuyer savings account is held.
e. In the case of an account administrator who is also the
account holder, all of the following apply:
(1) Notice by the account administrator to the account
holder under paragraph “b” is not required.
(2) The account administrator shall not use funds held
in a first-time homebuyer savings account to pay expenses of
administering the account, except that a service fee may be
charged to the account by the financial institution where the
account is held.
(3) Documentation regarding the segregation of funds in
a first-time homebuyer savings account from other funds and
documentation regarding eligible costs for the purchase of
a principal residence shall be maintained by the account
administrator.
(4) The account administrator shall file reports with the
department of revenue as reasonably required by the department
of revenue.
(5) Paragraph “c” , subparagraph (3), shall not apply. The
account administrator is required to remit the withdrawal
penalty in section 422.7, subsection 57, paragraph “c” ,
subparagraph (1), if assessed, to the department of revenue in
the same manner as provided in section 422.16, subsection 2.
4. Penalties. A person who knowingly prepares or causes to
be prepared a false claim, statement, or billing to justify the
withdrawal of money from a first-time homebuyer savings account
is guilty of a serious misdemeanor for each violation.
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Sec. 4. NEW SECTION . 12I.4 Tax considerations.
The state income tax treatment of a first-time homebuyer
savings account shall be as provided in section 422.7,
subsection 57.
Sec. 5. NEW SECTION . 12I.5 Rules.
The department of revenue and the treasurer of state shall
each adopt rules to jointly implement and administer this
chapter.
Sec. 6. Section 422.7, Code 2014, is amended by adding the
following new subsection:
NEW SUBSECTION . 57. a. Subtract the amount of
contributions made by an account holder to the account holder’s
first-time homebuyer savings account during the tax year, not
to exceed three thousand dollars per individual per tax year,
or six thousand dollars per tax year for a married couple who
have a joint first-time homebuyer savings account and file a
joint return. An amount of contributions made during a tax
year in excess of three thousand dollars, or six thousand
dollars, as applicable, may be subtracted by an account holder
in a subsequent tax year, provided the total exemption under
this paragraph for the subsequent tax year does not exceed
three thousand dollars, or six thousand dollars, as applicable.
This paragraph shall not apply to an account holder more
than ten years after the account holder first establishes a
first-time homebuyer savings account.
b. Subtract, to the extent included, income from interest
and earnings received from an account holder’s first-time
homebuyer savings account. This paragraph shall not apply to
any interest and earnings received by an account holder more
than ten years after the account holder first establishes a
first-time homebuyer savings account.
c. (1) Add, to the extent previously subtracted under
paragraph “a” , the amount resulting from a withdrawal made from
a first-time homebuyer savings account for purposes other than
the payment of eligible costs of the account holder. If the
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withdrawal is made on a day other than the last business day
of the calendar year, such withdrawal shall also be assessed a
penalty in an amount equal to ten percent of the amount of the
withdrawal. The penalty shall not apply to withdrawals made on
account of the death of the account holder.
(2) For purposes of this paragraph “c” , any amount remaining
in a first-time homebuyer savings account of an account holder
on the day after the purchase of a principal residence or the
last business day of the tenth calendar year following the
calendar year in which the account holder first establishes a
first-time homebuyer savings account, whichever occurs first,
shall be considered a withdrawal under subparagraph (1).
(3) For purposes of this paragraph “c” , the following shall
not be considered a withdrawal under subparagraph (1):
(a) Any amount transferred between different first-time
homebuyer savings accounts of the same account holder by a
person other than the account holder.
(b) Any amounts withdrawn or otherwise transferred from a
first-time homebuyer savings account pursuant to an order in
bankruptcy.
d. For purposes of this subsection, “account holder” ,
“business day” , “eligible costs” , and “first-time homebuyer
savings account” all mean the same as defined in section 12I.2.
Sec. 7. EFFECTIVE DATE. This Act takes effect January 1,
2015.
Sec. 8. APPLICABILITY. This Act applies to tax years
beginning on or after January 1, 2015.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
This bill allows first-time homebuyers who are residents
of Iowa to establish a first-time homebuyer savings account
(account) with a state or federally chartered bank, savings and
loan association, credit union, or trust company in this state
to finance the purchase of a principal residence in this state.
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“First-time homebuyer” and “principal residence” are defined in
the bill. The account is required to be an interest-bearing
savings account. The account may be established individually
or jointly with the resident’s spouse. However, married
taxpayers electing to file separate tax returns or separately
on a combined tax return shall not establish or maintain a
joint account.
There is no limitation on the amount of contributions that
may be made to or retained in a first-time homebuyer savings
account. An account holder is required to use the funds in
an account for eligible costs related to the purchase of a
principal residence within 10 years following the year in which
the account is first established.
“Eligible costs” are defined in the bill and include the down
payment and allowable closing costs of a principal residence
that was purchased after the establishment of the account. If
the account holder withdraws funds for any purpose other than
the payment of eligible costs, the account holder is subject
to a penalty equal to 10 percent of the withdrawal, unless the
withdrawal occurs on the last business day of the calendar
year or was because of the death of the account holder. The
penalty amounts are required to be withheld by the account
administrator and remitted to the department of revenue in
the same manner as Code section 422.16(2), relating to the
withholding of income tax. A person ceases to be an account
holder following the purchase of a principal residence after
the establishment of an account.
Accounts are required to be administered by an account
administrator who will have a fiduciary duty to the account
holder. An account administrator may be a state or federally
chartered bank, savings and loan association, credit union, or
trust company in this state; a certified public accountant or
licensed public accountant; or the account holder. The account
administrator is required within 30 days of beginning account
administration to notify the account holder, in writing, of
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the last business day of the calendar year. The account
administrator shall use account funds only for the purpose of
making withdrawals at the request of the account holder and
for the payment of the expenses of administering the account.
An account administrator shall not be held personally,
individually, or corporately liable for the failure to withhold
and remit a withdrawal penalty if the account administrator
relied in good faith on documentation submitted by the account
holder of eligible costs paid or owed by the account holder.
The burden of proving that a withdrawal from an account was
made for eligible costs is upon the account holder. Within 30
days of being furnished proof of death of the account holder,
the account administrator shall distribute funds in an account
to the estate of the account holder or to a transfer on death
or pay on death beneficiary properly designated by the account
holder with the financial institution where the account is
held.
Special rules apply to an account administrator that is
also the account holder. First, notice of the last business
day of the calendar year is not required to be given. Second,
administration expenses shall not be paid, except that a
service fee may be charged to the account by the financial
institution where the account is held. Third, documentation
regarding the segregation of funds in the account from other
funds and documentation regarding eligible costs shall
be maintained by the account administrator. Fourth, the
account holder is required to file reports as required by the
department of revenue and to remit any assessed penalties in
the same manner a third-party account holder would be required.
An account administrator that is also the account holder may
not rely on the good-faith exception to personal liability for
failure to withhold and remit the penalty.
The bill provides for two individual income tax incentives
relating to first-time homebuyer savings accounts. First,
an account holder is allowed to subtract from the individual
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income tax the amount of contributions made during the year
to the account holder’s account, not to exceed $3,000 per
individual, or $6,000 for a married couple with a joint account
and filing a joint income tax return. If the account holder
contributes more than that amount, the excess may be subtracted
in a subsequent tax year provided the total exemption in any
one tax year does not exceed $3,000 or $6,000, as applicable.
Second, the bill exempts any interest or earnings received from
an account holder’s account. Both the contribution exemption
and interest exemption only apply for the first 10 years after
the account holder establishes an account.
The bill requires an account holder to add to net income the
amount of withdrawal from an account that was made for purposes
other than eligible costs of the account holder to the extent
it was previously subtracted as a contribution. Any amount
remaining in an account on the day after an account holder
purchases a principal residence or on the last business day of
the 10th calendar year following the calendar year the account
holder first establishes an account, whichever occurs first,
shall be considered a withdrawal that must be added to net
income to the extent it was previously subtracted. However,
amounts transferred between different accounts of the same
account holder by a person other than the account holder or
amounts withdrawn pursuant to an order in bankruptcy shall not
be considered withdrawals that must be added to net income.
The bill makes it a serious misdemeanor to knowingly prepare
or cause to be prepared a false claim, statement, or billing
to justify the withdrawal of money from a first-time homebuyer
savings account. A serious misdemeanor is punishable by
confinement for no more than one year and a fine of at least
$315 but not more than $1,875.
The bill requires the department of revenue and the
treasurer of state to each adopt rules to jointly implement and
administer the bill.
The bill takes effect January 1, 2015, and applies to tax
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years beginning on or after that date.
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