H.F. 622 Section 1. Section 422.7, Code 2017, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 41. a. Subject to the restrictions in 3 paragraph “b” , subtract the sum of the following amounts: 4 (1) The amount of contributions made by an account holder 5 during the tax year to the account holder’s first-time 6 homebuyer savings accounts, not to exceed the following annual 7 limit: 8 (a) (i) For married taxpayers who file a joint return and 9 maintain a joint first-time homebuyer savings account, four 10 thousand dollars. 11 (ii) For any other account holder, two thousand dollars. 12 (b) For the tax year beginning in the 2018 calendar year 13 and for each subsequent tax year, the director shall multiply 14 each dollar amount set forth in subparagraph subdivisions (i) 15 and (ii) by the latest cumulative inflation factor, shall 16 round off the resulting product to the nearest one dollar, 17 and shall incorporate the result into the income tax forms 18 and instructions for each tax year. For purposes of this 19 subparagraph division, “cumulative inflation factor” means the 20 product of the annual inflation factor for the 2018 calendar 21 year and all annual inflation factors for subsequent calendar 22 years as determined by section 422.4, subsection 1, paragraph 23 “a” . The cumulative inflation factor applies to all tax years 24 beginning on or after January 1 of the calendar year for 25 which the latest annual inflation factor has been determined. 26 Notwithstanding any other provision, the annual inflation 27 factor for the 2018 calendar year is one hundred percent. 28 (2) To the extent included, income from interest received 29 from the account holder’s first-time homebuyer savings 30 accounts. 31 b. (1) The subtraction in paragraph “a” shall not exceed 32 the following aggregate lifetime limit: 33 (a) For married taxpayers who file a joint return and 34 maintain a joint first-time homebuyer savings account, an 35 -1- LSB 2280HV (3) 87 mm/rj 1/ 12

H.F. 622 amount equal to the product of the deductible amount determined 1 for the year in paragraph “a” , subparagraph (1), subparagraph 2 division (a), subparagraph subdivision (i), multiplied by ten. 3 (b) For any other account holder, an amount equal to the 4 product of the deductible amount determined for the year in 5 paragraph “a” , subparagraph (1), subparagraph division (a), 6 subparagraph subdivision (ii), multiplied by ten. 7 (2) The subtraction in paragraph “a” shall not be allowed to 8 an account holder upon one of the following dates, whichever 9 occurs first: 10 (a) January 1 of the tenth calendar year after the calendar 11 year during which the account holder first opened a first-time 12 homebuyer savings account. 13 (b) The date on which funds within an account holder’s 14 first-time homebuyer savings account are withdrawn for purposes 15 other than the payment or reimbursement of the designated 16 beneficiary’s eligible home costs in connection with a 17 qualified home purchase. Any amount transferred between 18 different first-time homebuyer savings accounts of the same 19 account holder by a person other than the account holder 20 shall not be considered a withdrawal for purposes of this 21 subparagraph division (b). 22 c. (1) Add, to the extent previously deducted under 23 paragraph “a” , subparagraph (1), the amount withdrawn during 24 the tax year from an account holder’s first-time homebuyer 25 savings account for purposes other than the payment or 26 reimbursement of the designated beneficiary’s eligible home 27 costs in connection with a qualified home purchase. 28 (2) For purposes of this paragraph “c” , any amount remaining 29 in an account holder’s first-time homebuyer savings account 30 on January 1 of the tenth calendar year after the calendar 31 year during which the account holder first opened a first-time 32 homebuyer savings account shall be considered immediately 33 withdrawn under subparagraph (1). 34 (3) For purposes of this paragraph “c” , the transfer of 35 -2- LSB 2280HV (3) 87 mm/rj 2/ 12

H.F. 622 amounts between different first-time homebuyer accounts of the 1 same account holder by a person other than the account holder 2 shall not cause such transfer to be considered a withdrawal 3 under subparagraph (1). 4 d. For any amount considered a withdrawal required to be 5 added to net income pursuant to paragraph “c” , the account 6 holder shall be assessed a penalty equal to ten percent of 7 the amount of the withdrawal. The penalty shall not apply 8 to withdrawals made by reason of the death of the account 9 holder, or to withdrawals made pursuant to a garnishment, 10 levy, or other order, including but not limited to an order in 11 bankruptcy following a filing for protection under the federal 12 bankruptcy code, 11 U.S.C. §101 et seq. 13 e. For purposes of this subsection, “account holder” , 14 “designated beneficiary” , “eligible home costs” , “first-time 15 homebuyer savings account” , and “qualified home purchase” mean 16 the same as defined in section 541B.2. 17 Sec. 2. Section 422.9, subsection 2, Code 2017, is amended 18 by adding the following new paragraph: 19 NEW PARAGRAPH . k. Subtract interest, taxes, and other 20 miscellaneous expenses deductible for federal income tax 21 purposes to the extent such amounts are eligible home costs 22 in connection with a qualified home purchase that were paid 23 or reimbursed from funds in a first-time homebuyer savings 24 account. For purposes of this paragraph, “eligible home costs” , 25 “ first-time homebuyer savings account” , and “qualified home 26 purchase” mean the same as defined in section 541B.2. 27 Sec. 3. NEW SECTION . 541B.1 Short title. 28 This chapter may be cited as the “Iowa First-Time Homebuyer 29 Savings Account Act” . 30 Sec. 4. NEW SECTION . 541B.2 Definitions. 31 As used in this chapter, unless the context otherwise 32 requires: 33 1. “Account holder” means an individual who establishes, 34 either individually or jointly with the individual’s spouse, 35 -3- LSB 2280HV (3) 87 mm/rj 3/ 12

H.F. 622 a first-time homebuyer savings account pursuant to section 1 541B.3. 2 2. “Department” means the department of revenue. 3 3. “Designated beneficiary” means an individual meeting the 4 requirements of section 541B.3, subsection 2, and designated 5 by an account holder as beneficiary of the account holder’s 6 first-time homebuyer savings account pursuant to section 7 541B.3, subsection 2. 8 4. a. “Eligible home costs” means the following: 9 (1) The down payment for the purchase of a single-family 10 residence in Iowa by a designated beneficiary. 11 (2) A cost, fee, tax, or payment incurred by, or charged 12 or assigned to, a designated beneficiary for the purchase of a 13 single-family residence in Iowa, and listed on the statement 14 of receipts and disbursements for the sale, including any 15 statement prescribed by 12 C.F.R. §1026.38, as amended. 16 b. “Eligible home costs” includes any United States veterans 17 administration funding fee incurred by, or charged or assigned 18 to, a designated beneficiary in connection with a veterans 19 administration home loan guaranty program. 20 5. “Financial institution” means a state or federally 21 chartered bank, savings and loan association, credit union, or 22 trust company in this state. 23 6. “First-time homebuyer” means an individual who is a 24 resident of Iowa and who does not own, either individually or 25 jointly, a single-family or multifamily residence, and who 26 has not owned or purchased, either individually or jointly, a 27 single-family or multifamily residence for a period of three 28 years prior to all of the following: 29 a. The date on which the individual is named as a designated 30 beneficiary of a first-time homebuyer savings account. 31 b. The date of the qualified home purchase for which the 32 eligible home costs are paid or reimbursed from a first-time 33 homebuyer savings account. 34 7. “First-time homebuyer savings account” means an account 35 -4- LSB 2280HV (3) 87 mm/rj 4/ 12

H.F. 622 that meets the requirements of sections 541B.3 and 541B.4 and 1 that was established for the purpose of paying or reimbursing a 2 designated beneficiary’s eligible home costs in connection with 3 a qualified home purchase. 4 8. “Individual” means a natural person. 5 9. “Qualified home purchase” means, with respect to a 6 first-time homebuyer savings account, the purchase of a 7 single-family residence in Iowa by the account’s designated 8 beneficiary ninety or more days after the date the account 9 holder first opened a first-time homebuyer savings account. 10 10. “Resident” means the same as defined in section 422.4. 11 11. “Single-family residence” means a single-family 12 residence owned and occupied by a designated beneficiary as the 13 designated beneficiary’s principal residence, including but not 14 limited to a manufactured home, mobile home, condominium unit, 15 or cooperative. 16 Sec. 5. NEW SECTION . 541B.3 First-time homebuyer savings 17 account. 18 1. Establishment of account. 19 a. Beginning January 1, 2018, an individual may open an 20 interest-bearing savings account with a financial institution 21 and designate the entire account as a first-time homebuyer 22 savings account for the purpose of paying or reimbursing a 23 designated beneficiary’s eligible home costs in connection with 24 a qualified home purchase. The first-time homebuyer savings 25 account designation shall be made no later than April 30 of the 26 year following the tax year during which the account is opened, 27 on forms provided by the department. 28 b. A married couple electing to file a joint Iowa individual 29 income tax return may establish a joint first-time homebuyer 30 savings account. Married taxpayers electing to file separate 31 tax returns or separately on a combined tax return for Iowa tax 32 purposes shall not establish or maintain a joint first-time 33 homebuyer savings account. 34 c. An individual may establish more than one first-time 35 -5- LSB 2280HV (3) 87 mm/rj 5/ 12

H.F. 622 homebuyer savings account, provided each account has a 1 different designated beneficiary. 2 2. Designation of beneficiary. 3 a. The account holder shall designate one individual as 4 beneficiary of the first-time homebuyer savings account. The 5 designation shall be made on forms provided by the department 6 and no later than April 30 of the year following the tax year 7 during which the account is opened. The account holder may 8 change the designated beneficiary of the first-time homebuyer 9 savings account at any time. 10 b. The account holder and designated beneficiary of 11 a first-time homebuyer savings account may be the same 12 individual. 13 c. An individual may be the designated beneficiary of more 14 than one first-time homebuyer savings account. 15 d. The designated beneficiary of a first-time homebuyer 16 savings account must be a first-time homebuyer. 17 Sec. 6. NEW SECTION . 541B.4 Account administration —— 18 account holder responsibilities. 19 1. Account contributions. Contributions to a first-time 20 homebuyer savings account may be made by any person in the form 21 of cash. There is no limitation on the amount of contributions 22 that may be made to or retained in a first-time homebuyer 23 savings account. 24 2. Account expenses. The account holder shall not use funds 25 held in a first-time homebuyer savings account to pay expenses, 26 if any, of administering the account, except that all fees and 27 charges assessed by the financial institution may be deducted 28 from the account by the financial institution where the account 29 is held. 30 3. Required reports. The account holder shall submit the 31 following information to the department: 32 a. An annual report for the first-time homebuyer savings 33 account on forms furnished by the department. The report shall 34 be included with the Iowa income tax return of the account 35 -6- LSB 2280HV (3) 87 mm/rj 6/ 12

H.F. 622 holder. 1 b. A copy of the federal internal revenue service form 2 1099, or other similar federal internal revenue service income 3 reporting form, if any, issued for the first-time homebuyer 4 savings account to the account holder by the financial 5 institution where the account is held. The form shall be 6 included with the Iowa income tax return of the account holder. 7 c. Upon a withdrawal of funds from a first-time homebuyer 8 savings account, a transaction report on forms furnished by the 9 department. 10 4. Withdrawal of funds. The account holder may withdraw 11 funds from a first-time homebuyer savings account at any time. 12 Sec. 7. NEW SECTION . 541B.5 Financial institution 13 protections. 14 Nothing in this chapter shall be construed to require a 15 financial institution to do any of the following, or to be 16 responsible or liable for any of the following: 17 1. Designate or label within the financial institution’s 18 account contracts, systems, or in any other manner, an account 19 as a first-time homebuyer savings account. 20 2. Ascertain or verify the purpose of a withdrawal of funds 21 from a first-time homebuyer savings account, or track the 22 destination or use of the withdrawn funds. 23 3. Allocate funds in a first-time homebuyer savings account 24 to a designated beneficiary or among joint account holders. 25 4. Report any information to the department or any other 26 governmental agency. 27 5. Determine or ensure that an account satisfies the 28 requirements to be a first-time homebuyer savings account. 29 6. Determine or ensure that funds withdrawn from a 30 first-time homebuyer savings account are used for the payment 31 or reimbursement of a designated beneficiary’s eligible home 32 costs in connection with a qualified home purchase. 33 7. Report or remit taxes or penalties related to the 34 ownership or use of a first-time homebuyer savings account. 35 -7- LSB 2280HV (3) 87 mm/rj 7/ 12

H.F. 622 8. Include the name of a beneficiary in the title of a 1 first-time homebuyer savings account, or document the change of 2 any beneficiary to a first-time homebuyer savings account. 3 Sec. 8. NEW SECTION . 541B.6 Tax considerations. 4 The state income tax treatment of a first-time homebuyer 5 savings account shall be as provided in section 422.7, 6 subsection 41, and section 422.9, subsection 2, paragraph “k” . 7 Sec. 9. NEW SECTION . 541B.7 Rules and forms. 8 1. The department shall adopt rules to implement and 9 administer this chapter. 10 2. The department shall create and make available forms 11 to be used in complying with this chapter, including but not 12 limited to the following: 13 a. A form for designating an account as a first-time 14 homebuyer savings account pursuant to section 541B.3, 15 subsection 1, paragraph “a” . 16 b. A form for designating an individual as beneficiary of 17 a first-time homebuyer savings account pursuant to section 18 541B.3, subsection 2, paragraph “a” . 19 c. A first-time homebuyer savings account annual report 20 as required in section 541B.4, subsection 3, paragraph “a” . 21 The report shall require, at a minimum, a list of transactions 22 occurring on the account during the tax year, and shall 23 identify any supporting documentation to be included with the 24 report or maintained by the taxpayer. 25 d. A transaction report as required in section 541B.4, 26 subsection 3, paragraph “c” , which report shall require, at a 27 minimum, information regarding the eligible home costs to which 28 any withdrawn funds were applied in connection with a qualified 29 home purchase, and information regarding the amount of funds 30 remaining, if any, in a first-time homebuyer savings account. 31 Sec. 10. APPLICABILITY. The following provision or 32 provisions of this Act apply to tax years beginning on or after 33 January 1, 2018: 34 1. The section of this Act enacting section 422.7, 35 -8- LSB 2280HV (3) 87 mm/rj 8/ 12

H.F. 622 subsection 41. 1 2. The section of this Act enacting section 422.9, 2 subsection 2, paragraph “k”. 3 EXPLANATION 4 The inclusion of this explanation does not constitute agreement with 5 the explanation’s substance by the members of the general assembly. 6 This bill allows individuals, on or after January 1, 2018, 7 to open an interest-bearing savings account with a state 8 or federally chartered bank, savings and loan association, 9 credit union, or trust company in this state and designate the 10 account as a first-time homebuyer savings account (account) 11 for the purpose of financing the purchase of a single-family 12 residence in this state by a first-time homebuyer. “First-time 13 homebuyer” is defined in the bill to include Iowa residents 14 who do not own a single-family or multifamily residence and 15 who have not owned or purchased a single-family or multifamily 16 residence for at least three years prior to the date the 17 individual is named as a designated beneficiary, and the date 18 of the home purchase for which the account’s funds are applied. 19 “Single-family residence” is also defined in the bill. The 20 account may be established individually, or jointly with a 21 spouse if the married couple files a joint Iowa income tax 22 return. 23 In order to properly establish the account, the bill 24 requires the account holder to submit certain forms to the 25 department of revenue (department) designating the account as 26 a first-time homebuyer savings account, and designating one 27 beneficiary of the account (designated beneficiary). These 28 designation forms must be submitted no later than April 30 of 29 the year following the tax year during which the account is 30 opened. An individual may establish more than one account, 31 provided each account has a different designated beneficiary. 32 The account holder may change the designated beneficiary at any 33 time, and may designate himself or herself as the beneficiary. 34 In addition, an individual may be the designated beneficiary 35 -9- LSB 2280HV (3) 87 mm/rj 9/ 12

H.F. 622 of more than one account. The designated beneficiary must be 1 a first-time homebuyer. 2 Contributions to an account may be made in the form of cash 3 by any person and in any amount. There is no limitation on the 4 amount that may be retained in an account. In addition, the 5 account holder may withdraw funds from an account at any time. 6 Account funds shall not be used to pay expenses, if any, of 7 administering the account, except that fees and charges may be 8 deducted from the account by the financial institution where 9 the account is held. The bill requires an account holder to 10 submit certain reports to the department, including an annual 11 report for the account, a transaction report upon a withdrawal 12 of funds from the account, and a copy of any federal Internal 13 Revenue Service form 1099 or other similar income statement 14 issued for the account. 15 The bill provides protection to financial institutions from 16 being required to perform, and from being responsible or liable 17 for, certain activities as described in the bill with respect 18 to accounts. The bill requires the department to create the 19 forms required to be filed by account holders, and to adopt 20 rules to implement and administer the bill. 21 The bill provides two individual income tax incentives 22 relating to the accounts. First, an account holder is 23 allowed to deduct from the individual income tax the amount of 24 contributions made during the year by the account holder to 25 the account holder’s accounts, not to exceed $2,000 per year, 26 or $4,000 for married taxpayers with a joint account. These 27 amounts are adjusted for inflation each calendar year. Second, 28 the bill exempts from the individual income tax any interest 29 received from the account holder’s accounts. The total amount 30 that may be deducted or excluded from the individual income 31 tax for these two tax incentives cannot exceed an aggregate 32 lifetime limit of 10 times the maximum deduction determined 33 above for the applicable year ($20,000 for 2016), or double 34 that amount for married taxpayers with a joint account ($40,000 35 -10- LSB 2280HV (3) 87 mm/rj 10/ 12

H.F. 622 for 2016). The account holder’s ability to claim the tax 1 incentives ends 10 tax years after the tax year the account 2 holder first opened an account, or on the date when account 3 funds are withdrawn for purposes other than the payment 4 or reimbursement of the designated beneficiary’s eligible 5 home costs in connection with a qualified home purchase 6 (nonqualified withdrawal), whichever occurs first. “Eligible 7 home costs” and “qualified home purchase” are both defined 8 in the bill, and “qualified home purchase” requires that the 9 account be open for at least 90 days prior to the purchase. 10 Amounts transferred between different accounts of the same 11 account holder by a person other than the account holder are 12 not considered a nonqualified withdrawal that would cause loss 13 of the ability to claim the tax incentives. 14 The bill requires an account holder to add to net income for 15 purposes of calculating the individual income tax any amount of 16 a nonqualified withdrawal from an account to the extent it was 17 previously deducted as a contribution, but amounts transferred 18 between different accounts of the same account holder by 19 a person other than the account holder are not considered 20 nonqualified withdrawals. In addition, any amount remaining in 21 an account holder’s account on January 1 of the 10th calendar 22 year after the calendar year during which the account holder 23 first opened an account is considered to be a nonqualified 24 withdrawal that must be added to net income for the tax year 25 beginning in that 10th year, to the extent it was previously 26 deducted as a contribution. Nonqualified withdrawals required 27 to be added to net income are also subject to a penalty equal 28 to 10 percent of the nonqualified withdrawal, unless the 29 withdrawal was made by reason of the death of the account 30 holder, or was made pursuant to a garnishment, levy, or other 31 order, including an order in bankruptcy following a filing for 32 protection under the federal bankruptcy code. 33 Finally, the bill prohibits the amount of eligible home 34 costs in connection with a qualified home purchase that are 35 -11- LSB 2280HV (3) 87 mm/rj 11/ 12