House Study Bill 638 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON ECONOMIC GROWTH BILL BY CHAIRPERSON HANUSA) A BILL FOR An Act providing for the creation 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 5761YC (15) 85 mm/sc

H.F. _____ 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 administrator” means one of the following: 7 a. A state or federally chartered bank, savings and loan 8 association, credit union, or trust company in this state. 9 b. A certified public accountant or licensed public 10 accountant, as those terms are defined in section 542.3. 11 c. An account holder. 12 2. “Account holder” means a first-time homebuyer who is a 13 resident of this state and who establishes, either individually 14 or jointly with the resident’s spouse who is also a first-time 15 homebuyer, a first-time homebuyer savings account. A person 16 ceases to be an account holder following the purchase of a 17 principal residence after the establishment of a first-time 18 homebuyer savings account. 19 3. “Business day” means a day other than a Saturday, Sunday, 20 or federal holiday. 21 4. “Eligible costs” means the down payment and allowable 22 closing costs for the purchase of a principal residence in Iowa 23 which principal residence is purchased after the establishment 24 of the first-time homebuyer savings account. 25 5. “First-time homebuyer” means an individual who has never 26 owned or purchased under contract for deed, either individually 27 or jointly, a single-family, owner-occupied residence, 28 including but not limited to a manufactured or mobile home that 29 is assessed and taxed as real estate or taxed under chapter 30 435 or taxed under other similar law of another state, or a 31 condominium unit. 32 6. “First-time homebuyer savings account” means an account 33 established with a state or federally chartered bank, savings 34 and loan association, credit union, or trust company in this 35 -1- LSB 5761YC (15) 85 mm/sc 1/ 10

H.F. _____ state to finance the purchase of a principal residence in this 1 state. 2 7. “Principal residence” means a single-family, 3 owner-occupied residence in the state that will be the 4 principal place of residence of the account holder, whether 5 owned or purchased under contract for deed by the account 6 holder, individually or jointly. “Principal residence” includes 7 but is not limited to a manufactured home or mobile home that 8 is assessed and taxed as real estate or taxed under chapter 9 435, and a condominium unit. 10 8. “Resident” means the same as defined in section 422.4. 11 Sec. 3. NEW SECTION . 12I.3 First-time homebuyer savings 12 account. 13 1. Establishment. 14 a. A first-time homebuyer who is a resident of this 15 state may establish, either individually or jointly with 16 the resident’s spouse who is also a first-time homebuyer, a 17 first-time homebuyer savings account to finance the purchase 18 of a principal residence. Married taxpayers electing to file 19 separate tax returns or separately on a combined tax return 20 shall not establish or maintain a joint first-time homebuyer 21 savings account. 22 b. The account holder who establishes the first-time 23 homebuyer savings account, individually or jointly, is the 24 owner of the account. 25 c. A first-time homebuyer savings account shall be an 26 interest-bearing savings account. 27 d. A financial institution shall not be responsible for 28 the use or application of funds within a first-time homebuyer 29 savings account solely because the account is held at that 30 financial institution. 31 2. Use by account holder. 32 a. The account holder shall use the money in the first-time 33 homebuyer savings account for eligible costs related to the 34 purchase of a principal residence within ten years following 35 -2- LSB 5761YC (15) 85 mm/sc 2/ 10

H.F. _____ the year in which the account is first established. 1 b. An account holder shall not contribute to a first-time 2 homebuyer savings account for a period exceeding ten years. 3 c. There is no limitation on the amount of contributions 4 that may be made to or retained in a first-time homebuyer 5 savings account. 6 3. Administration. 7 a. An account administrator shall administer the first-time 8 homebuyer savings account and has a fiduciary duty to the 9 person for whose benefit the account is administered. 10 b. Within thirty days after an account administrator begins 11 administering a first-time homebuyer savings account, the 12 account administrator shall notify, in writing, each account 13 holder on whose behalf the account administrator administers 14 the account of the date of the last business day of the 15 calendar year. 16 c. (1) An account administrator shall use funds held in a 17 first-time homebuyer savings account only for the purpose of 18 making withdrawals at the request of the account holder and for 19 paying the expenses of administering the account. 20 (2) If the account holder is subject to the withdrawal 21 penalty in section 422.7, subsection 57, paragraph “c” , 22 subparagraph (1), the account administrator shall withhold the 23 amount of the penalty from the amounts withdrawn and shall 24 remit the amount to the department of revenue in the same 25 manner as provided in section 422.16, subsection 2. 26 (3) Notwithstanding section 422.16, subsection 4, 27 an account administrator shall not be held personally, 28 individually, or corporately liable for the failure to 29 withhold and remit a withdrawal penalty from a withdrawal made 30 at the request of the account holder for which the account 31 administrator relied in good faith on documentation submitted 32 by the account holder of eligible costs paid or owed by the 33 account holder in the calendar year. The burden of proving 34 that a withdrawal from a first-time homebuyer savings account 35 -3- LSB 5761YC (15) 85 mm/sc 3/ 10

H.F. _____ was made for eligible costs is upon the account holder and not 1 upon the account administrator. 2 d. Within thirty days of being furnished proof of death of 3 the account holder, the account administrator shall distribute 4 any amount remaining in the first-time homebuyer savings 5 account to the estate of the account holder or to a transfer 6 on death or pay on death beneficiary of the account properly 7 designated by the account holder with the financial institution 8 at which the first-time homebuyer savings account is held. 9 e. In the case of an account administrator who is also the 10 account holder, all of the following apply: 11 (1) Notice by the account administrator to the account 12 holder under paragraph “b” is not required. 13 (2) The account administrator shall not use funds held 14 in a first-time homebuyer savings account to pay expenses of 15 administering the account, except that a service fee may be 16 charged to the account by the financial institution where the 17 account is held. 18 (3) Documentation regarding the segregation of funds in 19 a first-time homebuyer savings account from other funds and 20 documentation regarding eligible costs for the purchase of 21 a principal residence shall be maintained by the account 22 administrator. 23 (4) The account administrator shall file reports with the 24 department of revenue as reasonably required by the department 25 of revenue. 26 (5) Paragraph “c” , subparagraph (3), shall not apply. The 27 account administrator is required to remit the withdrawal 28 penalty in section 422.7, subsection 57, paragraph “c” , 29 subparagraph (1), if assessed, to the department of revenue in 30 the same manner as provided in section 422.16, subsection 2. 31 4. Penalties. A person who knowingly prepares or causes to 32 be prepared a false claim, statement, or billing to justify the 33 withdrawal of money from a first-time homebuyer savings account 34 is guilty of a serious misdemeanor for each violation. 35 -4- LSB 5761YC (15) 85 mm/sc 4/ 10

H.F. _____ Sec. 4. NEW SECTION . 12I.4 Tax considerations. 1 The state income tax treatment of a first-time homebuyer 2 savings account shall be as provided in section 422.7, 3 subsection 57. 4 Sec. 5. NEW SECTION . 12I.5 Rules. 5 The department of revenue and the treasurer of state shall 6 each adopt rules to jointly implement and administer this 7 chapter. 8 Sec. 6. Section 422.7, Code 2014, is amended by adding the 9 following new subsection: 10 NEW SUBSECTION . 57. a. Subtract the amount of 11 contributions made by an account holder to the account holder’s 12 first-time homebuyer savings account during the tax year, not 13 to exceed three thousand dollars per individual per tax year, 14 or six thousand dollars per tax year for a married couple who 15 have a joint first-time homebuyer savings account and file a 16 joint return. An amount of contributions made during a tax 17 year in excess of three thousand dollars, or six thousand 18 dollars, as applicable, may be subtracted by an account holder 19 in a subsequent tax year, provided the total exemption under 20 this paragraph for the subsequent tax year does not exceed 21 three thousand dollars, or six thousand dollars, as applicable. 22 This paragraph shall not apply to an account holder more 23 than ten years after the account holder first establishes a 24 first-time homebuyer savings account. 25 b. Subtract, to the extent included, income from interest 26 and earnings received from an account holder’s first-time 27 homebuyer savings account. This paragraph shall not apply to 28 any interest and earnings received by an account holder more 29 than ten years after the account holder first establishes a 30 first-time homebuyer savings account. 31 c. (1) Add, to the extent previously subtracted under 32 paragraph “a” , the amount resulting from a withdrawal made from 33 a first-time homebuyer savings account for purposes other than 34 the payment of eligible costs of the account holder. If the 35 -5- LSB 5761YC (15) 85 mm/sc 5/ 10

H.F. _____ withdrawal is made on a day other than the last business day 1 of the calendar year, such withdrawal shall also be assessed a 2 penalty in an amount equal to ten percent of the amount of the 3 withdrawal. The penalty shall not apply to withdrawals made on 4 account of the death of the account holder. 5 (2) For purposes of this paragraph “c” , any amount remaining 6 in a first-time homebuyer savings account of an account holder 7 on the day after the purchase of a principal residence or the 8 last business day of the tenth calendar year following the 9 calendar year in which the account holder first establishes a 10 first-time homebuyer savings account, whichever occurs first, 11 shall be considered a withdrawal under subparagraph (1). 12 (3) For purposes of this paragraph “c” , the following shall 13 not be considered a withdrawal under subparagraph (1): 14 (a) Any amount transferred between different first-time 15 homebuyer savings accounts of the same account holder by a 16 person other than the account holder. 17 (b) Any amounts withdrawn or otherwise transferred from a 18 first-time homebuyer savings account pursuant to an order in 19 bankruptcy. 20 d. For purposes of this subsection, “account holder” , 21 “business day” , “eligible costs” , and “first-time homebuyer 22 savings account” all mean the same as defined in section 12I.2. 23 Sec. 7. EFFECTIVE DATE. This Act takes effect January 1, 24 2015. 25 Sec. 8. APPLICABILITY. This Act applies to tax years 26 beginning on or after January 1, 2015. 27 EXPLANATION 28 The inclusion of this explanation does not constitute agreement with 29 the explanation’s substance by the members of the general assembly. 30 This bill allows first-time homebuyers who are residents 31 of Iowa to establish a first-time homebuyer savings account 32 (account) with a state or federally chartered bank, savings and 33 loan association, credit union, or trust company in this state 34 to finance the purchase of a principal residence in this state. 35 -6- LSB 5761YC (15) 85 mm/sc 6/ 10

H.F. _____ “First-time homebuyer” and “principal residence” are defined in 1 the bill. The account is required to be an interest-bearing 2 savings account. The account may be established individually 3 or jointly with the resident’s spouse. However, married 4 taxpayers electing to file separate tax returns or separately 5 on a combined tax return shall not establish or maintain a 6 joint account. 7 There is no limitation on the amount of contributions that 8 may be made to or retained in a first-time homebuyer savings 9 account. An account holder is required to use the funds in 10 an account for eligible costs related to the purchase of a 11 principal residence within 10 years following the year in which 12 the account is first established. 13 “Eligible costs” are defined in the bill and include the down 14 payment and allowable closing costs of a principal residence 15 that was purchased after the establishment of the account. If 16 the account holder withdraws funds for any purpose other than 17 the payment of eligible costs, the account holder is subject 18 to a penalty equal to 10 percent of the withdrawal, unless the 19 withdrawal occurs on the last business day of the calendar 20 year or was because of the death of the account holder. The 21 penalty amounts are required to be withheld by the account 22 administrator and remitted to the department of revenue in 23 the same manner as Code section 422.16(2), relating to the 24 withholding of income tax. A person ceases to be an account 25 holder following the purchase of a principal residence after 26 the establishment of an account. 27 Accounts are required to be administered by an account 28 administrator who will have a fiduciary duty to the account 29 holder. An account administrator may be a state or federally 30 chartered bank, savings and loan association, credit union, or 31 trust company in this state; a certified public accountant or 32 licensed public accountant; or the account holder. The account 33 administrator is required within 30 days of beginning account 34 administration to notify the account holder, in writing, of 35 -7- LSB 5761YC (15) 85 mm/sc 7/ 10

H.F. _____ the last business day of the calendar year. The account 1 administrator shall use account funds only for the purpose of 2 making withdrawals at the request of the account holder and 3 for the payment of the expenses of administering the account. 4 An account administrator shall not be held personally, 5 individually, or corporately liable for the failure to withhold 6 and remit a withdrawal penalty if the account administrator 7 relied in good faith on documentation submitted by the account 8 holder of eligible costs paid or owed by the account holder. 9 The burden of proving that a withdrawal from an account was 10 made for eligible costs is upon the account holder. Within 30 11 days of being furnished proof of death of the account holder, 12 the account administrator shall distribute funds in an account 13 to the estate of the account holder or to a transfer on death 14 or pay on death beneficiary properly designated by the account 15 holder with the financial institution where the account is 16 held. 17 Special rules apply to an account administrator that is 18 also the account holder. First, notice of the last business 19 day of the calendar year is not required to be given. Second, 20 administration expenses shall not be paid, except that a 21 service fee may be charged to the account by the financial 22 institution where the account is held. Third, documentation 23 regarding the segregation of funds in the account from other 24 funds and documentation regarding eligible costs shall 25 be maintained by the account administrator. Fourth, the 26 account holder is required to file reports as required by the 27 department of revenue and to remit any assessed penalties in 28 the same manner a third-party account holder would be required. 29 An account administrator that is also the account holder may 30 not rely on the good-faith exception to personal liability for 31 failure to withhold and remit the penalty. 32 The bill provides for two individual income tax incentives 33 relating to first-time homebuyer savings accounts. First, 34 an account holder is allowed to subtract from the individual 35 -8- LSB 5761YC (15) 85 mm/sc 8/ 10

H.F. _____ income tax the amount of contributions made during the year 1 to the account holder’s account, not to exceed $3,000 per 2 individual, or $6,000 for a married couple with a joint account 3 and filing a joint income tax return. If the account holder 4 contributes more than that amount, the excess may be subtracted 5 in a subsequent tax year provided the total exemption in any 6 one tax year does not exceed $3,000 or $6,000, as applicable. 7 Second, the bill exempts any interest or earnings received from 8 an account holder’s account. Both the contribution exemption 9 and interest exemption only apply for the first 10 years after 10 the account holder establishes an account. 11 The bill requires an account holder to add to net income the 12 amount of withdrawal from an account that was made for purposes 13 other than eligible costs of the account holder to the extent 14 it was previously subtracted as a contribution. Any amount 15 remaining in an account on the day after an account holder 16 purchases a principal residence or on the last business day of 17 the 10th calendar year following the calendar year the account 18 holder first establishes an account, whichever occurs first, 19 shall be considered a withdrawal that must be added to net 20 income to the extent it was previously subtracted. However, 21 amounts transferred between different accounts of the same 22 account holder by a person other than the account holder or 23 amounts withdrawn pursuant to an order in bankruptcy shall not 24 be considered withdrawals that must be added to net income. 25 The bill makes it a serious misdemeanor to knowingly prepare 26 or cause to be prepared a false claim, statement, or billing 27 to justify the withdrawal of money from a first-time homebuyer 28 savings account. A serious misdemeanor is punishable by 29 confinement for no more than one year and a fine of at least 30 $315 but not more than $1,875. 31 The bill requires the department of revenue and the 32 treasurer of state to each adopt rules to jointly implement and 33 administer the bill. 34 The bill takes effect January 1, 2015, and applies to tax 35 -9- LSB 5761YC (15) 85 mm/sc 9/ 10