HF 2470 (LSB 5890YH (4) 87)

HOUSE FILE 2470

BY  BERGAN

A BILL FOR

An Act relating to the Iowa first-time homebuyer savings account program, and including effective date and retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.7, subsection 41, paragraphs a and b, Code 2018, are amended to read as follows:
   a.  Subject to the restrictions in paragraph “b”, subtract the sum of the following amounts: 
   (1)  (a)  The amount of contributions made by an account holder during the tax year to the account holder’s first-time homebuyer savings accounts, not to exceed the following annual limit:
   (a)  (i)  For married taxpayers who file a joint return and maintain a joint first-time homebuyer savings account, four thousand dollars.
   (ii)  For any other account holder, of two thousand dollars.
   (b)  For the tax year beginning in the 2018 calendar year and for each subsequent tax year, the director shall multiply each the dollar amount set forth in subparagraph division (a), subparagraph subdivisions (i) and (ii), by the latest cumulative inflation factor, shall round off the resulting product to the nearest one dollar, and shall incorporate the result into the income tax forms and instructions for each tax year. For purposes of this subparagraph division, “cumulative inflation factor” means the product of the annual inflation factor for the 2018 calendar year and all annual inflation factors for subsequent calendar years as determined by section 422.4, subsection 1, paragraph “a”. The cumulative inflation factor applies to all tax years beginning on or after January 1 of the calendar year for which the latest annual inflation factor has been determined. Notwithstanding any other provision, the annual inflation factor for the 2018 calendar year is one hundred percent.
   (2)  To the extent included, income from interest received from the account holder’s first-time homebuyer savings accounts.
   b.  (1)  The subtraction in paragraph “a” shall not exceed the following aggregate lifetime limit:
   (a)  For married taxpayers who file a joint return and maintain a joint first-time homebuyer savings account, an amount equal to the product of the deductible amount determined for the year in paragraph “a”, subparagraph (1), subparagraph division (a), subparagraph subdivision (i), multiplied by ten.
   (b)  For any other account holder, an amount equal to the product of the deductible amount determined for the year in which the first-time homebuyer savings account is first opened as calculated in paragraph “a”, subparagraph (1), subparagraph division (a), subparagraph subdivision (ii), multiplied by ten.
   (2)  The subtraction in paragraph “a” shall not be allowed to an account holder upon one of the following dates, whichever occurs first:
   (a)  January 1 of the tenth calendar year after the calendar year during which the account holder first opened a first-time homebuyer savings account.
   (b)  The date on which funds within an account holder’s first-time homebuyer savings account are withdrawn for purposes other than the payment or reimbursement of the designated beneficiary’s eligible home costs in connection with a qualified home purchase. Any amount transferred between different first-time homebuyer savings accounts of the same account holder by a person other than the account holder shall not be considered a withdrawal for purposes of this subparagraph division (b).
    Sec. 2.  Section 422.7, subsection 41, paragraph c, subparagraph (1), Code 2018, is amended to read as follows:
   (1)  Add, to the extent previously deducted under paragraph “a”, subparagraph (1), the amount withdrawn during the tax year from an account holder’s first-time homebuyer savings account for purposes other than the payment or reimbursement of the designated beneficiary’s eligible home costs in connection with a qualified home purchase.
    Sec. 3.  Section 541B.2, subsection 3, Code 2018, is amended to read as follows:
   3.  “Designated beneficiary” means an individual meeting the requirements of section 541B.3, subsection 2, and a first-time homebuyer designated by an account holder as beneficiary of the account holder’s first-time homebuyer savings account pursuant to section 541B.3, subsection 2.
    Sec. 4.  Section 541B.2, subsection 6, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   “First-time homebuyer” means an individual who is a resident of Iowa and who does not own, either individually or jointly, a single-family or multifamily residence, and who has not owned or purchased, either individually or jointly, a single-family or multifamily residence for a period of three years prior to all of the following:
    Sec. 5.  Section 541B.2, subsections 7 and 11, Code 2018, are amended to read as follows:
   7.  “First-time homebuyer savings account” means an account that constitutes a savings deposit as defined 12 C.F.R. §204.2(d), that meets the requirements of sections 541B.3 and 541B.4, and that was established for the purpose of paying or reimbursing a designated beneficiary’s eligible home costs in connection with a qualified home purchase.
   11.  “Single-family residence” means a single-family residence owned and occupied as defined in section 562A.6, a manufactured home, mobile home, condominium unit, or cooperative that is purchased by a designated beneficiary and will be owned and occupied as the designated beneficiary’s principal residence, including but not limited to a manufactured home, mobile home, condominium unit, or cooperative within ninety days of the closing date.
    Sec. 6.  Section 541B.3, subsection 1, Code 2018, is amended to read as follows:
   1.  Establishment of account.
   a.  Beginning January 1, 2018, an individual may open an interest-bearing savings account with a financial institution and designate the entire account as a first-time homebuyer savings account for the purpose of paying or reimbursing a designated beneficiary’s eligible home costs in connection with a qualified home purchase. The first-time homebuyer savings account designation shall be made no later than April 30 the last day of the fourth month after the expiration of the year following the tax year during which the account is opened, on forms provided by the department.
   b.  A married couple electing to file a joint Iowa individual income tax return may establish a joint first-time homebuyer savings account. Married taxpayers electing to file separate tax returns or separately on a combined tax return for Iowa tax purposes shall not establish or maintain a joint first-time homebuyer savings account.
   c.  b.  An individual may establish more than one first-time homebuyer savings account, provided each account has a different designated beneficiary.
    Sec. 7.  Section 541B.3, subsection 2, paragraph a, Code 2018, is amended to read as follows:
   a.  The account holder shall designate one individual as beneficiary of the first-time homebuyer savings account. The designation shall be made on forms provided by the department and filed with the department no later than April 30 of the year following the last day of the fourth month after the expiration of the tax year during which the account is opened. The account holder may change the designated beneficiary of the first-time homebuyer savings account at any time.
    Sec. 8.  Section 541B.4, subsection 3, Code 2018, is amended to read as follows:
   3.  Required reports.  The account holder shall submit the following information to the department: 
   a.  An annual report for the first-time homebuyer savings account on forms furnished by the department. The report shall be included with the Iowa income tax return of the account holder.
   b.  A copy of the federal internal revenue service form 1099, or other similar federal internal revenue service income reporting form, if any, issued for the first-time homebuyer savings account to the account holder by the financial institution where the account is held. The form shall be included with the Iowa income tax return of the account holder.
   c.  b.  Upon a withdrawal of funds from a first-time homebuyer savings account, a transaction report on forms furnished by the department.
    Sec. 9.  EFFECTIVE DATE.  This Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 10.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2018, for tax years beginning on or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill makes numerous changes to the Iowa first-time homebuyer savings account program in Code chapter 541B (program). 
   The bill removes the requirement that a first-time homebuyer be a resident of Iowa. The bill modifies the definition of “first-time homebuyer savings account” under the program to provide that the account must constitute a savings deposit as that term is defined for purposes of the federal reserve system. The bill modifies the definition of “single-family residence” under the program to include a reference to the definition of “single-family residence” under the uniform residential landlord and tenant law (Code chapter 562A), and to require that the single-family residence be owned and occupied by the designated beneficiary within 90 days of the closing date. 
   The bill strikes the ability of a married couple filing joint individual income tax returns to establish and maintain a joint first-time homebuyer savings account (account).
   The bill modifies various deadlines for filing forms and making designations under the program from April 30 of the year following the year the account is opened, to the last day of the fourth month after the expiration of the tax year during which the account is opened. 
   The bill strikes the requirement that an annual report for an account be included with the account holder’s Iowa income tax return, and further strikes a requirement that an account holder submit a copy of the federal internal revenue service form 1099 related to an account with the account holder’s Iowa income tax return. 
   Finally, the bill makes changes to the income tax benefits related to contributions to and earnings from an account. Under current law, account holders are allowed a deduction for the first $2,000 of contributions made to an account during a tax year, and that $2,000 annual limit is indexed to inflation and increased each tax year. Current law also sets a lifetime limit on the total amount of contributions that may be deductible on an account holder’s income tax return equal to 10 times the annual contribution limit determined for the year. The bill modifies this lifetime limit by setting it as an amount equal to 10 times the annual contribution limit for the year in which the account is first opened by an account holder.
   Also under current law, previously deducted account contributions are added back to income, and thus taxable, to the extent the amounts are later withdrawn from an account for purposes other than the payment or reimbursement of a designated beneficiary’s eligible home costs under the program. The bill specifies that this add-back requirement also applies to previously deducted interest earned on the account. 
   The bill takes effect upon enactment and applies retroactively to January 1, 2018, for tax years beginning on or after that date.