S.F. 414 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. “Business day” means a day other than a Saturday, Sunday, 14 or federal holiday. 15 3. “Eligible costs” means the down payment and allowable 16 closing costs for the purchase of a principal residence in Iowa 17 which principal residence is purchased after the establishment 18 of the first-time homebuyer savings account. 19 4. “First-time homebuyer” means an individual who has never 20 owned or purchased under contract for deed, either individually 21 or jointly, a single-family, owner-occupied residence, 22 including but not limited to a manufactured or mobile home that 23 is assessed and taxed as real estate or taxed under chapter 24 435 or taxed under other similar law of another state, or a 25 condominium unit. 26 5. “First-time homebuyer savings account” means an account 27 established with a state or federally chartered bank, savings 28 and loan association, credit union, or trust company in this 29 state to finance the purchase of a principal residence in this 30 state. 31 6. “Principal residence” means a single-family, 32 owner-occupied residence in the state that will be the 33 principal place of residence of the account holder, whether 34 owned or purchased under contract for deed by the account 35 -1- LSB 2200SV (2) 86 mm/sc 1/ 8

S.F. 414 holder, individually or jointly. “Principal residence” includes 1 but is not limited to a manufactured home or mobile home that 2 is assessed and taxed as real estate or taxed under chapter 3 435, and a condominium unit. 4 7. “Resident” means the same as defined in section 422.4. 5 Sec. 3. NEW SECTION . 12I.3 First-time homebuyer savings 6 account. 7 1. Establishment. 8 a. A first-time homebuyer who is a resident of this 9 state may establish, either individually or jointly with 10 the resident’s spouse who is also a first-time homebuyer, a 11 first-time homebuyer savings account to finance the purchase 12 of a principal residence. Married taxpayers electing to file 13 separate tax returns or separately on a combined tax return 14 shall not establish or maintain a joint first-time homebuyer 15 savings account. 16 b. The account holder who establishes the first-time 17 homebuyer savings account, individually or jointly, is the 18 owner and administrator of the account. 19 c. A first-time homebuyer savings account shall be an 20 interest-bearing savings account. 21 d. A financial institution shall not be responsible for 22 the use or application of funds within a first-time homebuyer 23 savings account solely because the account is held at that 24 financial institution. 25 2. Use and administration by account holder. 26 a. The account holder shall use the money in the first-time 27 homebuyer savings account for eligible costs related to the 28 purchase of a principal residence within ten years following 29 the year in which the account is first established. 30 b. An account holder shall not contribute to a first-time 31 homebuyer savings account for a period exceeding ten years. 32 c. There is no limitation on the amount of contributions 33 that may be made to or retained in a first-time homebuyer 34 savings account. 35 -2- LSB 2200SV (2) 86 mm/sc 2/ 8

S.F. 414 d. The account holder shall not use funds held in a 1 first-time homebuyer savings account to pay expenses, if any, 2 of administering the account, other than to the financial 3 institution where the account is held for expenses or costs 4 related to maintaining the account. 5 e. Documentation regarding the segregation of funds in 6 a first-time homebuyer savings account from other funds and 7 documentation regarding eligible costs for the purchase of a 8 principal residence shall be maintained by the account holder. 9 The burden of proving that a withdrawal from a first-time 10 homebuyer savings account was made for eligible costs is upon 11 the account holder. 12 f. Within thirty days of being furnished proof of death 13 of the account holder, the financial institution where 14 the first-time homebuyer savings account is held shall 15 distribute any amount remaining in the first-time homebuyer 16 savings account to the estate of the account holder or to a 17 transfer on death or pay on death beneficiary of the account 18 properly designated by the account holder with the financial 19 institution. A financial institution shall not be held liable 20 by an account holder, the director of revenue, or the treasurer 21 of state for the payment of tax or for any other claim relating 22 to distributions or withdrawals from a first-time homebuyer 23 savings account pursuant to this section. 24 g. The account holder shall file reports with the department 25 of revenue as reasonably required by the department of revenue. 26 h. The account holder is required to remit the withdrawal 27 penalty in section 422.7, subsection 57, paragraph “c” , if 28 assessed, to the department of revenue in the same manner as 29 provided in section 422.16, subsection 2. 30 3. Penalties. A person who knowingly prepares or causes to 31 be prepared a false claim, statement, or billing to justify the 32 withdrawal of money from a first-time homebuyer savings account 33 is guilty of a serious misdemeanor for each violation. 34 Sec. 4. NEW SECTION . 12I.4 Tax considerations. 35 -3- LSB 2200SV (2) 86 mm/sc 3/ 8

S.F. 414 The state income tax treatment of a first-time homebuyer 1 savings account shall be as provided in section 422.7, 2 subsection 57. 3 Sec. 5. NEW SECTION . 12I.5 Rules. 4 The director of revenue shall adopt rules to implement and 5 administer this chapter. 6 Sec. 6. Section 422.7, Code 2015, is amended by adding the 7 following new subsection: 8 NEW SUBSECTION . 57. a. Subtract the amount of 9 contributions made by an account holder to the account holder’s 10 first-time homebuyer savings account during the tax year, not 11 to exceed three thousand dollars per individual per tax year, 12 or six thousand dollars per tax year for a married couple who 13 have a joint first-time homebuyer savings account and file a 14 joint return. An amount of contributions made during a tax 15 year in excess of three thousand dollars, or six thousand 16 dollars, as applicable, may be subtracted by an account holder 17 in a subsequent tax year, provided the total exemption under 18 this paragraph for the subsequent tax year does not exceed 19 three thousand dollars, or six thousand dollars, as applicable. 20 This paragraph shall not apply to an account holder more 21 than ten years after the account holder first establishes a 22 first-time homebuyer savings account. 23 b. Subtract, to the extent included, income from interest 24 and earnings received from an account holder’s first-time 25 homebuyer savings account. This paragraph “b” shall not apply 26 to any interest and earnings received by an account holder more 27 than ten years after the account holder first establishes a 28 first-time homebuyer savings account. 29 c. (1) Add, to the extent previously subtracted under 30 paragraph “a” , the amount resulting from a withdrawal made from 31 a first-time homebuyer savings account for purposes other than 32 the payment of eligible costs of the account holder. If the 33 withdrawal is made on a day other than the last business day 34 of the calendar year, such withdrawal shall also be assessed a 35 -4- LSB 2200SV (2) 86 mm/sc 4/ 8

S.F. 414 penalty in an amount equal to ten percent of the amount of the 1 withdrawal. The penalty shall not apply to withdrawals made on 2 account of the death of the account holder. 3 (2) For purposes of this paragraph “c” , any amount remaining 4 in a first-time homebuyer savings account of an account holder 5 on the day after the purchase of a principal residence or the 6 last business day of the tenth calendar year following the 7 calendar year in which the account holder first establishes a 8 first-time homebuyer savings account, whichever occurs first, 9 shall be considered a withdrawal under subparagraph (1). 10 (3) For purposes of this paragraph “c” , the following shall 11 not be considered a withdrawal under subparagraph (1): 12 (a) Any amount transferred between different first-time 13 homebuyer savings accounts of the same account holder by a 14 person other than the account holder. 15 (b) Any amounts withdrawn or otherwise transferred from a 16 first-time homebuyer savings account pursuant to an order in 17 bankruptcy. 18 d. For purposes of this subsection, “account holder” , 19 “business day” , “eligible costs” , and “first-time homebuyer 20 savings account” all mean the same as defined in section 12I.2. 21 Sec. 7. EFFECTIVE DATE. This Act takes effect January 1, 22 2016. 23 Sec. 8. APPLICABILITY. This Act applies to tax years 24 beginning on or after January 1, 2016. 25 EXPLANATION 26 The inclusion of this explanation does not constitute agreement with 27 the explanation’s substance by the members of the general assembly. 28 This bill allows first-time homebuyers who are residents 29 of Iowa to establish a first-time homebuyer savings account 30 (account) with a state or federally chartered bank, savings and 31 loan association, credit union, or trust company in this state 32 to finance the purchase of a principal residence in this state. 33 “First-time homebuyer” and “principal residence” are defined in 34 the bill. The account is required to be an interest-bearing 35 -5- LSB 2200SV (2) 86 mm/sc 5/ 8

S.F. 414 savings account. The account may be established individually 1 or jointly with the resident’s spouse. However, married 2 taxpayers electing to file separate tax returns or separately 3 on a combined tax return shall not establish or maintain a 4 joint account. 5 There is no limitation on the amount of contributions that 6 may be made to or retained in a first-time homebuyer savings 7 account. An account holder is required to use the funds in 8 an account for eligible costs related to the purchase of a 9 principal residence within 10 years following the year in which 10 the account is first established. 11 “Eligible costs” are defined in the bill and include the down 12 payment and allowable closing costs of a principal residence 13 that was purchased after the establishment of the account. If 14 the account holder withdraws funds for any purpose other than 15 the payment of eligible costs, the account holder is subject 16 to a penalty equal to 10 percent of the withdrawal, unless the 17 withdrawal occurs on the last business day of the calendar year 18 or was because of the death of the account holder. The penalty 19 amounts are required to be remitted by the account holder to 20 the department of revenue in the same manner as Code section 21 422.16(2), relating to the withholding of income tax. A person 22 ceases to be an account holder following the purchase of a 23 principal residence after the establishment of an account. 24 Accounts are required to be administered by the account 25 holder. The bill prohibits the account holder from using 26 account funds to pay administrative expenses of the account 27 other than to the financial institution where the account is 28 held for expenses or costs related to maintaining the account. 29 Documentation regarding the segregation of funds in the account 30 from other funds and documentation regarding eligible costs 31 shall be maintained by the account holder. The bill also 32 requires the account holder to file reports as required by the 33 department of revenue. Within 30 days of being furnished proof 34 of death of the account holder, the financial institution where 35 -6- LSB 2200SV (2) 86 mm/sc 6/ 8

S.F. 414 the account is held shall distribute the funds to the estate 1 of the account holder or to a transfer on death or pay on death 2 beneficiary properly designated by the account holder. The 3 bill provides that a financial institution shall not be held 4 liable to an account holder, the director of revenue, or the 5 treasurer of state for the payment of tax or any other claim 6 relating to distributions or withdrawals from an account. 7 The bill provides for two individual income tax incentives 8 relating to first-time homebuyer savings accounts. First, 9 an account holder is allowed to subtract from the individual 10 income tax the amount of contributions made during the year 11 to the account holder’s account, not to exceed $3,000 per 12 individual, or $6,000 for a married couple with a joint account 13 and filing a joint income tax return. If the account holder 14 contributes more than that amount, the excess may be subtracted 15 in a subsequent tax year provided the total exemption in any 16 one tax year does not exceed $3,000 or $6,000, as applicable. 17 Second, the bill exempts any interest or earnings received from 18 an account holder’s account. Both the contribution exemption 19 and interest exemption only apply for the first 10 years after 20 the account holder establishes an account. 21 The bill requires an account holder to add to net income the 22 amount of withdrawal from an account that was made for purposes 23 other than eligible costs of the account holder to the extent 24 it was previously subtracted as a contribution. Any amount 25 remaining in an account on the day after an account holder 26 purchases a principal residence or on the last business day of 27 the 10th calendar year following the calendar year the account 28 holder first establishes an account, whichever occurs first, 29 shall be considered a withdrawal that must be added to net 30 income to the extent it was previously subtracted. However, 31 amounts transferred between different accounts of the same 32 account holder by a person other than the account holder or 33 amounts withdrawn pursuant to an order in bankruptcy shall not 34 be considered withdrawals that must be added to net income. 35 -7- LSB 2200SV (2) 86 mm/sc 7/ 8

S.F. 414 The bill makes it a serious misdemeanor to knowingly prepare 1 or cause to be prepared a false claim, statement, or billing 2 to justify the withdrawal of money from a first-time homebuyer 3 savings account. A serious misdemeanor is punishable by 4 confinement for no more than one year and a fine of at least 5 $315 but not more than $1,875. 6 The bill requires the director of revenue to adopt rules to 7 implement and administer the bill. 8 The bill takes effect January 1, 2016, and applies to tax 9 years beginning on or after that date. 10 -8- LSB 2200SV (2) 86 mm/sc 8/ 8