House File 368 - Introduced HOUSE FILE 368 BY STECKMAN , McCONKEY , HALL , KELLEY , STAED , KRESSIG , DAWSON , T. TAYLOR , and JACOBY A BILL FOR An Act relating to the establishment of first-time homebuyer 1 savings accounts in Iowa, including related individual 2 income tax exemptions, making penalties applicable, and 3 including effective date and applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 2398YH (2) 86 mm/sc

H.F. 368 Section 1. NEW SECTION . 12I.1 Short title. 1 This chapter may be cited as the “Iowa First-time Homebuyer 2 Savings Account Act” . 3 Sec. 2. NEW SECTION . 12I.2 Definitions. 4 As used in this chapter, unless the context otherwise 5 requires: 6 1. “Account holder” means a first-time homebuyer who is a 7 resident of this state and who establishes, either individually 8 or jointly with the resident’s spouse who is also a first-time 9 homebuyer, a first-time homebuyer savings account. A person 10 ceases to be an account holder following the purchase of a 11 principal residence after the establishment of a first-time 12 homebuyer savings account. 13 2. “Eligible costs” means the down payment and allowable 14 closing costs for the purchase of a principal residence in Iowa 15 which principal residence is purchased after the establishment 16 of the first-time homebuyer savings account. 17 3. “First-time homebuyer” means an individual who has never 18 owned or purchased under contract for deed, either individually 19 or jointly, a single-family, owner-occupied residence, 20 including but not limited to a manufactured or mobile home that 21 is assessed and taxed as real estate or taxed under chapter 22 435 or taxed under other similar law of another state, or a 23 condominium unit. 24 4. “First-time homebuyer savings account” means an account 25 established with a state or federally chartered bank, savings 26 and loan association, credit union, or trust company in this 27 state to finance the purchase of a principal residence in this 28 state. 29 5. “Principal residence” means a single-family, 30 owner-occupied residence in the state that will be the 31 principal place of residence of the account holder, whether 32 owned or purchased under contract for deed by the account 33 holder, individually or jointly. “Principal residence” includes 34 but is not limited to a manufactured home or mobile home that 35 -1- LSB 2398YH (2) 86 mm/sc 1/ 8

H.F. 368 is assessed and taxed as real estate or taxed under chapter 1 435, and a condominium unit. 2 6. “Resident” means the same as defined in section 422.4. 3 Sec. 3. NEW SECTION . 12I.3 First-time homebuyer savings 4 account. 5 1. Establishment. 6 a. A first-time homebuyer who is a resident of this 7 state may establish, either individually or jointly with 8 the resident’s spouse who is also a first-time homebuyer, a 9 first-time homebuyer savings account to finance the purchase 10 of a principal residence. Married taxpayers electing to file 11 separate tax returns or separately on a combined tax return 12 shall not establish or maintain a joint first-time homebuyer 13 savings account. 14 b. The account holder who establishes the first-time 15 homebuyer savings account, individually or jointly, is the 16 owner and administrator of the account. 17 c. A first-time homebuyer savings account shall be an 18 interest-bearing savings account. 19 d. A financial institution shall not be responsible for 20 the use or application of funds within a first-time homebuyer 21 savings account solely because the account is held at that 22 financial institution. 23 2. Use and administration by account holder. 24 a. The account holder shall use the money in the first-time 25 homebuyer savings account for eligible costs related to the 26 purchase of a principal residence within ten years following 27 the year in which the account is first established. 28 b. An account holder shall not contribute to a first-time 29 homebuyer savings account for a period exceeding ten years. 30 c. There is no limitation on the amount of contributions 31 that may be made to or retained in a first-time homebuyer 32 savings account. 33 d. The account holder shall not use funds held in a 34 first-time homebuyer savings account to pay expenses, if any, 35 -2- LSB 2398YH (2) 86 mm/sc 2/ 8

H.F. 368 of administering the account, except that a service fee may be 1 charged to the account by the financial institution where the 2 account is held. 3 e. Documentation regarding the segregation of funds in 4 a first-time homebuyer savings account from other funds and 5 documentation regarding eligible costs for the purchase of a 6 principal residence shall be maintained by the account holder. 7 The burden of proving that a withdrawal from a first-time 8 homebuyer savings account was made for eligible costs is upon 9 the account holder. 10 f. Within thirty days of being furnished proof of death 11 of the account holder, the financial institution where 12 the first-time homebuyer savings account is held shall 13 distribute any amount remaining in the first-time homebuyer 14 savings account to the estate of the account holder or to a 15 transfer on death or pay on death beneficiary of the account 16 properly designated by the account holder with the financial 17 institution. 18 g. The account holder shall file reports with the department 19 of revenue as reasonably required by the department of revenue. 20 h. The account holder is required to remit the withdrawal 21 penalty in section 422.7, subsection 57, paragraph “c” , if 22 assessed, to the department of revenue in the same manner as 23 provided in section 422.16, subsection 2. 24 3. Penalties. A person who knowingly prepares or causes to 25 be prepared a false claim, statement, or billing to justify the 26 withdrawal of money from a first-time homebuyer savings account 27 is guilty of a serious misdemeanor for each violation. 28 Sec. 4. NEW SECTION . 12I.4 Tax considerations. 29 The state income tax treatment of a first-time homebuyer 30 savings account shall be as provided in section 422.7, 31 subsection 57. 32 Sec. 5. NEW SECTION . 12I.5 Rules. 33 The director of revenue and the treasurer of state shall each 34 adopt rules to jointly implement and administer this chapter. 35 -3- LSB 2398YH (2) 86 mm/sc 3/ 8

H.F. 368 Sec. 6. Section 422.7, Code 2015, is amended by adding the 1 following new subsection: 2 NEW SUBSECTION . 57. a. Subtract the amount of 3 contributions made by an account holder to the account holder’s 4 first-time homebuyer savings account during the tax year, not 5 to exceed three thousand dollars per individual per tax year, 6 or six thousand dollars per tax year for a married couple who 7 have a joint first-time homebuyer savings account and file a 8 joint return. An amount of contributions made during a tax 9 year in excess of three thousand dollars, or six thousand 10 dollars, as applicable, may be subtracted by an account holder 11 in a subsequent tax year, provided the total exemption under 12 this paragraph for the subsequent tax year does not exceed 13 three thousand dollars, or six thousand dollars, as applicable. 14 This paragraph shall not apply to an account holder more 15 than ten years after the account holder first establishes a 16 first-time homebuyer savings account. 17 b. Subtract, to the extent included, income from interest 18 and earnings received from an account holder’s first-time 19 homebuyer savings account. This paragraph “b” shall not apply 20 to any interest and earnings received by an account holder more 21 than ten years after the account holder first establishes a 22 first-time homebuyer savings account. 23 c. (1) Add, to the extent previously subtracted under 24 paragraph “a” , the amount resulting from a withdrawal made from 25 a first-time homebuyer savings account for purposes other than 26 the payment of eligible costs of the account holder. Such 27 withdrawal shall also be assessed a penalty in an amount equal 28 to ten percent of the amount of the withdrawal that represents 29 interest and earnings in the first-time homebuyer savings 30 account. The penalty shall not apply to withdrawals made on 31 account of the death of the account holder or for the purpose 32 of paying the eligible costs of the account holder. 33 (2) For purposes of this paragraph “c” , any amount remaining 34 in a first-time homebuyer savings account of an account holder 35 -4- LSB 2398YH (2) 86 mm/sc 4/ 8

H.F. 368 on the day after the purchase of a principal residence or the 1 last business day of the tenth calendar year following the 2 calendar year in which the account holder first establishes a 3 first-time homebuyer savings account, whichever occurs first, 4 shall be considered a withdrawal under subparagraph (1). 5 (3) For purposes of this paragraph “c” , the following shall 6 not be considered a withdrawal under subparagraph (1): 7 (a) Any amount transferred between different first-time 8 homebuyer savings accounts of the same account holder by a 9 person other than the account holder. 10 (b) Any amounts withdrawn or otherwise transferred from a 11 first-time homebuyer savings account pursuant to an order in 12 bankruptcy. 13 d. For purposes of this subsection, “account holder” , 14 “eligible costs” , and “first-time homebuyer savings account” all 15 mean the same as defined in section 12I.2. 16 Sec. 7. EFFECTIVE DATE. This Act takes effect January 1, 17 2016. 18 Sec. 8. APPLICABILITY. This Act applies to tax years 19 beginning on or after January 1, 2016. 20 EXPLANATION 21 The inclusion of this explanation does not constitute agreement with 22 the explanation’s substance by the members of the general assembly. 23 This bill allows first-time homebuyers who are residents 24 of Iowa to establish a first-time homebuyer savings account 25 (account) with a state or federally chartered bank, savings and 26 loan association, credit union, or trust company in this state 27 to finance the purchase of a principal residence in this state. 28 “First-time homebuyer” and “principal residence” are defined in 29 the bill. The account is required to be an interest-bearing 30 savings account. The account may be established individually 31 or jointly with the resident’s spouse. However, married 32 taxpayers electing to file separate tax returns or separately 33 on a combined tax return shall not establish or maintain a 34 joint account. 35 -5- LSB 2398YH (2) 86 mm/sc 5/ 8

H.F. 368 There is no limitation on the amount of contributions that 1 may be made to or retained in a first-time homebuyer savings 2 account. An account holder is required to use the funds in 3 an account for eligible costs related to the purchase of a 4 principal residence within 10 years following the year in which 5 the account is first established. 6 “Eligible costs” are defined in the bill and include the down 7 payment and allowable closing costs of a principal residence 8 that was purchased after the establishment of the account. If 9 the account holder withdraws funds for any purpose other than 10 the payment of eligible costs, the account holder is subject to 11 a penalty equal to 10 percent of the amount of the withdrawal 12 that represents interest and earnings in the account, unless 13 the withdrawal occurs because of the death of the account 14 holder. The penalty amounts are required to be remitted by the 15 account holder to the department of revenue in the same manner 16 as Code section 422.16(2), relating to the withholding of 17 income tax. A person ceases to be an account holder following 18 the purchase of a principal residence after the establishment 19 of an account. 20 Accounts are required to be administered by the account 21 holder. The bill prohibits the account holder from using 22 account funds to pay administrative expenses of the account, 23 but the bill does allow a financial institution where the 24 account is held to charge a service fee. Documentation 25 regarding the segregation of funds in the account from other 26 funds and documentation regarding eligible costs shall be 27 maintained by the account holder. The bill also requires the 28 account holder to file reports as required by the department of 29 revenue. Within 30 days of being furnished proof of death of 30 the account holder, the financial institution where the account 31 is held shall distribute the funds to the estate of the account 32 holder or to a transfer on death or pay on death beneficiary 33 properly designated by the account holder. 34 The bill provides for two individual income tax incentives 35 -6- LSB 2398YH (2) 86 mm/sc 6/ 8

H.F. 368 relating to first-time homebuyer savings accounts. First, 1 an account holder is allowed to subtract from the individual 2 income tax the amount of contributions made during the year 3 to the account holder’s account, not to exceed $3,000 per 4 individual, or $6,000 for a married couple with a joint account 5 and filing a joint income tax return. If the account holder 6 contributes more than that amount, the excess may be subtracted 7 in a subsequent tax year provided the total exemption in any 8 one tax year does not exceed $3,000 or $6,000, as applicable. 9 Second, the bill exempts any interest or earnings received from 10 an account holder’s account. Both the contribution exemption 11 and interest exemption only apply for the first 10 years after 12 the account holder establishes an account. 13 The bill requires an account holder to add to net income the 14 amount of withdrawal from an account that was made for purposes 15 other than eligible costs of the account holder to the extent 16 it was previously subtracted as a contribution. Any amount 17 remaining in an account on the day after an account holder 18 purchases a principal residence or on the last business day of 19 the 10th calendar year following the calendar year the account 20 holder first establishes an account, whichever occurs first, 21 shall be considered a withdrawal that must be added to net 22 income to the extent it was previously subtracted. However, 23 amounts transferred between different accounts of the same 24 account holder by a person other than the account holder or 25 amounts withdrawn pursuant to an order in bankruptcy shall not 26 be considered withdrawals that must be added to net income. 27 The bill makes it a serious misdemeanor to knowingly prepare 28 or cause to be prepared a false claim, statement, or billing 29 to justify the withdrawal of money from a first-time homebuyer 30 savings account. A serious misdemeanor is punishable by 31 confinement for no more than one year and a fine of at least 32 $315 but not more than $1,875. 33 The bill requires the director of revenue and the treasurer 34 of state to each adopt rules to jointly implement and 35 -7- LSB 2398YH (2) 86 mm/sc 7/ 8