House File 697 - Introduced HOUSE FILE 697 BY KONFRST , FORBES , BAGNIEWSKI , CAHILL , CROKEN , WILSON , COOLING , BAETH , LEVIN , TUREK , STAED , SCHEETZ , KURTH , AMOS JR. , NIELSEN , BUCK , WESSEL-KROESCHELL , STECKMAN , MATSON , WILBURN , JAMES , GAINES , JUDGE , MADISON , JACOBY , KRESSIG , EHLERT , B. MEYER , SRINIVAS , BROWN-POWERS , OLSON , and SCHOLTEN A BILL FOR An Act establishing an Iowa housing tax credit program 1 and increasing first-time homebuyer tax incentives, and 2 including effective date and applicability provisions. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 2097YH (6) 90 jm/jh

H.F. 697 DIVISION I 1 IOWA HOUSING TAX CREDIT PROGRAM 2 Section 1. NEW SECTION . 16.37A Definitions. 3 For purposes of this part, unless the context otherwise 4 requires: 5 1. “Compliance period” means the period of fifteen years 6 beginning with the first taxable year of the credit period. 7 2. “Credit period” means the period of ten tax years 8 beginning with the tax year in which a qualified development 9 is placed in service and the Iowa housing tax credit may be 10 claimed. If a qualified development consists of more than 11 one building, the qualified development is placed in service 12 in the tax year in which the last building of the qualified 13 development is placed in service. 14 3. “Department” means the Iowa department of revenue. 15 4. “Qualified allocation plan” means the qualified 16 allocation plan adopted by the authority pursuant to section 17 42(m) of the Internal Revenue Code. 18 5. “Qualified basis” means the qualified basis determined 19 under section 42(c)(1) of the Internal Revenue Code. 20 6. “Qualified development” means a qualified low-income 21 housing project under section 42(g) of the Internal Revenue 22 Code that is financed with tax-exempt bonds, pursuant to 23 section 42(i)(2) of the Internal Revenue Code, and located in 24 this state. 25 7. “Taxpayer” means an individual, a person, firm, 26 corporation, or other entity that owns an interest, direct 27 or indirect, in a qualified development and who claims a tax 28 credit under section 16.37C. 29 Sec. 2. NEW SECTION . 16.37B Application —— review —— 30 authorization. 31 1. The authority shall develop a system for the application, 32 review, and authorization of Iowa housing tax credits awarded 33 pursuant to this part and shall control the issuance of all tax 34 credit certificates to taxpayers pursuant to this part. 35 -1- LSB 2097YH (6) 90 jm/jh 1/ 9

H.F. 697 2. Applications for Iowa housing tax credits shall be 1 accepted during an annual application period established by the 2 authority. 3 3. The authority may authorize the tax credit if all of the 4 following conditions are satisfied: 5 a. The tax credit certificate is issued to a taxpayer who 6 has an ownership interest in the qualified development. 7 b. The tax credit amount is allocated pursuant to a 8 qualified allocation plan. 9 c. The tax credit is necessary for the financial feasibility 10 of the qualified development. 11 d. The amount of the tax credit allocated to an owner 12 does not exceed thirty percent of the qualified basis of the 13 qualified development. 14 e. The qualified development is the subject of a recorded 15 restrictive covenant requiring that, for the compliance period 16 or for a longer period agreed to by the authority and the 17 owner of the qualified development, the development shall be 18 maintained and operated as a qualified development and shall be 19 in compliance with Tit. VIII of the federal Civil Rights Act of 20 1968, as amended. 21 4. Upon review of an application, the authority may approve 22 the qualified development for the tax credit program provided 23 in section 16.37C, and issue a tax credit certificate stating 24 the amount of the tax credit the authority determines the 25 applicant is eligible to claim for each year of the credit 26 period. 27 5. Unless otherwise provided in this section or the context 28 clearly requires otherwise, the authority shall determine 29 eligibility for a credit and allocate credits in accordance 30 with the standards and requirements set forth in section 42 of 31 the Internal Revenue Code. 32 6. An applicant that is unsuccessful in receiving a tax 33 credit award during an annual application period may make 34 additional applications during subsequent annual application 35 -2- LSB 2097YH (6) 90 jm/jh 2/ 9

H.F. 697 periods. Such applicants shall be required to submit a new 1 application which shall be reviewed in the same manner as other 2 applications in that annual application period. 3 Sec. 3. NEW SECTION . 16.37C Iowa housing tax credits —— 4 limits. 5 1. An Iowa housing tax credit shall be allowed against 6 the taxes imposed in chapter 422, subchapters II, III, and V, 7 and in chapter 432, and against the moneys and credits tax 8 imposed in section 533.329, in the amount determined by the 9 authority pursuant to this part. Any tax credit in excess of 10 the taxpayer’s liability for the tax year is not refundable but 11 may be credited to the tax liability for the following five 12 years or until depleted, whichever is earlier. 13 2. An individual may claim a tax credit under this 14 subsection of a partnership, limited liability company, 15 S corporation, estate, or trust electing to have income 16 taxed directly to the individual. The amount claimed by the 17 individual shall be based upon the pro rata share of the 18 individual’s earnings from the partnership, limited liability 19 company, S corporation, estate, or trust. 20 3. In any calendar year, the aggregate amount of all tax 21 credits allocated by the authority shall not exceed fifteen 22 million dollars, plus the sum of the following amounts: 23 a. The total of all unallocated tax credits, if any, for the 24 preceding calendar years. 25 b. The total amount of all previously allocated tax credits 26 that have been recaptured, revoked, canceled, or otherwise 27 recovered by the authority. 28 4. a. To claim a tax credit under this section, a taxpayer 29 shall include one or more tax credit certificates issued by the 30 authority with the taxpayer’s tax return. 31 b. The tax credit certificate shall contain the taxpayer’s 32 name, address, tax identification number, the amount of the 33 credit including the amount the authority determines the 34 taxpayer is eligible to claim for each year of the credit 35 -3- LSB 2097YH (6) 90 jm/jh 3/ 9

H.F. 697 period, the name of the qualified development, any other 1 information required by the department of revenue, and a place 2 for the name and tax identification number of a transferee and 3 the amount of the tax credit being transferred. 4 c. Tax credit certificates issued under this section may 5 be transferred to any person or entity. Within ninety days 6 of transfer, the transferee shall submit the transferred tax 7 credit certificate to the authority along with a statement 8 containing the transferee’s name, tax identification number, 9 and address, the denomination that each replacement tax credit 10 certificate is to carry, and any other information required by 11 the department of revenue. 12 d. Within thirty days of receiving the transferred tax 13 credit certificate and the transferee’s statement, the 14 authority shall issue one or more replacement tax credit 15 certificates to the transferee. Each replacement tax credit 16 certificate must contain the information required for the 17 original tax credit certificate and must have the same 18 expiration date that appeared in the transferred tax credit 19 certificate. Tax credit certificate amounts of less than 20 the minimum amount established by rule of the Iowa finance 21 authority shall not be transferable. 22 e. A tax credit shall not be claimed by a transferee 23 under this section until a replacement tax credit certificate 24 identifying the transferee as the proper holder has been 25 issued. The transferee may use the amount of the tax credit 26 transferred against the taxes imposed in chapter 422, 27 subchapters II, III, and V, and in chapter 432, and against the 28 moneys and credits tax imposed in section 533.329, for any tax 29 year the original transferor could have claimed the tax credit. 30 Any consideration received for the transfer of the tax credit 31 shall not be included as income under chapter 422, subchapters 32 II, III, and V. Any consideration paid for the transfer of the 33 tax credit shall not be deducted from income under chapter 422, 34 subchapters II, III, and V. 35 -4- LSB 2097YH (6) 90 jm/jh 4/ 9

H.F. 697 Sec. 4. NEW SECTION . 16.37D Recapture. 1 1. As of the last day of any tax year during the compliance 2 period, if the amount of the qualified basis of a qualified 3 development owned by a taxpayer claiming the credit is less 4 than the amount of the qualified basis as of the last day of the 5 immediately preceding tax year, the amount of the taxpayer’s 6 liability under this part shall be increased by the recapture 7 amount determined using the method under section 42(j) of the 8 Internal Revenue Code. 9 2. If a recapture event occurs, the taxpayer shall include 10 the recaptured proportion of the credit on the return submitted 11 for the tax year in which the recapture event is identified. 12 Sec. 5. NEW SECTION . 16.37E Compliance monitoring. 13 The authority shall monitor and oversee compliance with 14 sections 16.37A through 16.37D and shall report specific 15 occurrences of noncompliance to the department. 16 Sec. 6. NEW SECTION . 16.37F Report to the general assembly. 17 1. On or before January 31 of each year, the authority shall 18 submit to the general assembly a report that includes all of 19 the following: 20 2. A statement of the number of qualified developments for 21 which the authority issued tax certificates that year. 22 3. A description of each qualified development for which 23 the authority issued a tax certificate that year, including the 24 geographic location of the development, the household type and 25 any specific demographic information available concerning the 26 residents intended to be served by the development, the income 27 levels of residents intended to be served by the development, 28 and the rents or set-asides authorized for each development. 29 4. An analysis of housing market and demographic 30 information that shows how the qualified developments for 31 which the authority has issued tax certificates at any time 32 are addressing the need for affordable housing within the 33 communities those developments are intended to serve, and an 34 analysis of any remaining disparities in the affordability of 35 -5- LSB 2097YH (6) 90 jm/jh 5/ 9

H.F. 697 housing within those communities. 1 Sec. 7. NEW SECTION . 16.37G Rules. 2 The authority and the department shall adopt rules pursuant 3 to chapter 17A as necessary for the implementation and 4 administration of this part. 5 Sec. 8. NEW SECTION . 422.10C Iowa housing tax credit. 6 The taxes imposed under this subchapter, less the credits 7 allowed under section 422.12, shall be reduced by an Iowa 8 housing tax credit allowed under section 16.37C. 9 Sec. 9. Section 422.33, Code 2023, is amended by adding the 10 following new subsection: 11 NEW SUBSECTION . 17. The taxes imposed under this subchapter 12 shall be reduced by an Iowa housing tax credit as allowed under 13 section 16.37C. 14 Sec. 10. Section 422.60, Code 2023, is amended by adding the 15 following new subsection: 16 NEW SUBSECTION . 16. The taxes imposed under this subchapter 17 shall be reduced by an Iowa housing tax credit as allowed under 18 section 16.37C. 19 Sec. 11. NEW SECTION . 432.12P Iowa housing tax credit. 20 The taxes imposed under this chapter shall be reduced by an 21 Iowa housing tax credit allowed under section 16.37C. 22 Sec. 12. Section 533.329, subsection 2, Code 2023, is 23 amended by adding the following new paragraph: 24 NEW PARAGRAPH . n. The moneys and credits tax imposed under 25 this section shall be reduced by an Iowa housing tax credit 26 allowed under section 16.37C. 27 Sec. 13. CODE EDITOR DIRECTIVE. The Code editor shall 28 designate sections 16.37A through 16.37G, as enacted by 29 this division of this Act, as a new part within chapter 16, 30 subchapter VII, and may redesignate the new and preexisting 31 parts, replace references to sections 16.37A through 16.37G 32 with references to the new part, and correct internal 33 references as necessary, including references in subchapter or 34 part headnotes. 35 -6- LSB 2097YH (6) 90 jm/jh 6/ 9

H.F. 697 Sec. 14. EFFECTIVE DATE. This division of this Act takes 1 effect January 1, 2024. 2 Sec. 15. APPLICABILITY. This division of this Act applies 3 to tax years beginning on or after January 1, 2024. 4 DIVISION II 5 FIRST-TIME HOMEBUYER SAVINGS ACCOUNTS 6 Sec. 16. Section 422.7, subsection 27, paragraph a, 7 subparagraph (1), subparagraph division (a), subparagraph 8 subdivisions (i) and (ii), Code 2023, are amended to read as 9 follows: 10 (i) For married taxpayers who file a joint return and 11 maintain a joint first-time homebuyer savings account, four ten 12 thousand dollars. 13 (ii) For any other account holder, two five thousand 14 dollars. 15 EXPLANATION 16 The inclusion of this explanation does not constitute agreement with 17 the explanation’s substance by the members of the general assembly. 18 This bill relates to an Iowa housing tax credit program and 19 increasing first-time homebuyer tax incentives, and includes 20 effective date and applicability provisions. 21 DIVISION I —— IOWA HOUSING TAX CREDIT PROGRAM. The bill 22 creates an Iowa housing tax credit program available against 23 the individual and corporate income taxes, franchise tax, 24 insurance premium tax, and moneys and credits tax. 25 The bill requires the Iowa finance authority (authority) to 26 develop a system for the application, review, and authorization 27 of Iowa housing tax credits. A tax credit may be claimed by 28 a taxpayer for a “qualified development” defined to mean a 29 qualified low-income housing project under section 42(g) of the 30 Internal Revenue Code that is financed by tax-exempt bonds. 31 An Iowa housing tax credit may be authorized by the authority 32 if all of the following apply: the tax credit is issued to 33 a taxpayer who has an ownership interest in the qualified 34 development; the tax credit amount is allocated pursuant to 35 -7- LSB 2097YH (6) 90 jm/jh 7/ 9

H.F. 697 a qualified allocation plan adopted by the authority; the 1 tax credit is necessary for the financial feasibility of the 2 qualified development; the amount of the tax credit allocated 3 to an owner shall not exceed 30 percent of the qualified basis 4 of the qualified development; and the qualified development is 5 the subject of a recorded restrictive covenant requiring the 6 qualified development be maintained and operated as a qualified 7 development for a certain number of years. 8 The amount of an Iowa housing tax credit award is determined 9 by the authority and may be claimed during the credit period 10 (10 years), and any credit in excess of the taxpayer’s 11 liability for the tax year is not refundable but may be 12 credited to the tax liability for the following five years. 13 In any calendar year, the bill limits the aggregate amount 14 of the tax credit to $15 million plus the sum of the total of 15 unallocated tax credits from the preceding calendar year and 16 the previously allocated tax credits that have been revoked, 17 canceled, or recaptured. 18 A taxpayer shall claim the credit by including one or more 19 tax certificates issued by the authority with the taxpayer’s 20 return. The bill allows a tax credit certificate to be 21 transferred to any person or entity. The bill requires the 22 transferee to submit the transferred tax credit certificate to 23 the authority within 90 days of the transfer, and requires the 24 authority to issue a replacement tax credit certificate within 25 30 days of receiving the transferred tax credit certificate. 26 The bill allows the authority to recapture tax credit 27 amounts from previously issued tax credits, if on the last day 28 of a taxable year during the compliance period (15 years), if 29 the amount of the qualified basis of a qualified development 30 owned by a taxpayer claiming the credit is less than the amount 31 of the qualified basis as of the last day of the immediately 32 preceding tax year, the amount of the taxpayer’s liability 33 shall be increased by the recapture amount determined using the 34 method under section 42(j) of the Internal Revenue Code. If 35 -8- LSB 2097YH (6) 90 jm/jh 8/ 9

H.F. 697 a recapture event occurs, the bill requires the taxpayer to 1 include the recaptured amount on the return submitted for the 2 tax year in which the recapture event is identified. 3 The bill requires the authority to submit a report to the 4 general assembly by January 31 each year, detailing the Iowa 5 housing tax credit program. 6 The division takes effect January 1, 2024, and applies to tax 7 years beginning on or after that date. 8 DIVISION II —— FIRST-TIME HOMEBUYER SAVINGS ACCOUNTS. The 9 bill makes changes to the income tax benefits related to 10 contributions made to a first-time homebuyer savings account. 11 Under current law, for married persons filing a joint return 12 an account holder is allowed to deduct the first $4,000 of 13 contributions made to an account during the tax year if the 14 account holder also maintains a joint first-time homebuyer 15 savings account, and for any other person the account holder 16 is allowed to deduct for the first $2,000 of contributions 17 made to such an account during the tax year. The first-time 18 homebuyer savings account annual deduction limits are indexed 19 to inflation and are increased each year. For the 2022 tax 20 year the annual deduction limit for married persons filing a 21 joint return is $4,363, and for all other persons the limit is 22 $2,181. 23 The bill increases the annual deduction limit for first-time 24 homebuyer savings account contributions to $10,000 for married 25 persons filing a joint return, and to $5,000 for any other 26 account holder. The new annual deduction limits in the bill 27 are also indexed to inflation and are increased each year. 28 -9- LSB 2097YH (6) 90 jm/jh 9/ 9