HF 697 (LSB 2097YH (6) 90)

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 and increasing first-time homebuyer tax incentives, and including effective date and applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
IOWA HOUSING TAX CREDIT PROGRAM

    Section 1.  NEW SECTION.  16.37A  Definitions.
   For purposes of this part, unless the context otherwise requires:
   1.  “Compliance period” means the period of fifteen years beginning with the first taxable year of the credit period.
   2.  “Credit period” means the period of ten tax years beginning with the tax year in which a qualified development is placed in service and the Iowa housing tax credit may be claimed. If a qualified development consists of more than one building, the qualified development is placed in service in the tax year in which the last building of the qualified development is placed in service.
   3.  “Department” means the Iowa department of revenue.
   4.  “Qualified allocation plan” means the qualified allocation plan adopted by the authority pursuant to section 42(m) of the Internal Revenue Code.
   5.  “Qualified basis” means the qualified basis determined under section 42(c)(1) of the Internal Revenue Code.
   6.  “Qualified development” means a qualified low-income housing project under section 42(g) of the Internal Revenue Code that is financed with tax-exempt bonds, pursuant to section 42(i)(2) of the Internal Revenue Code, and located in this state.
   7.  “Taxpayer” means an individual, a person, firm, corporation, or other entity that owns an interest, direct or indirect, in a qualified development and who claims a tax credit under section 16.37C.
    Sec. 2.  NEW SECTION.  16.37B  Application —— review —— authorization.
   1.  The authority shall develop a system for the application, review, and authorization of Iowa housing tax credits awarded pursuant to this part and shall control the issuance of all tax credit certificates to taxpayers pursuant to this part.
   2.  Applications for Iowa housing tax credits shall be accepted during an annual application period established by the authority.
   3.  The authority may authorize the tax credit if all of the following conditions are satisfied:
   a.  The tax credit certificate is issued to a taxpayer who has an ownership interest in the qualified development.
   b.  The tax credit amount is allocated pursuant to a qualified allocation plan.
   c.  The tax credit is necessary for the financial feasibility of the qualified development.
   d.  The amount of the tax credit allocated to an owner does not exceed thirty percent of the qualified basis of the qualified development.
   e.  The qualified development is the subject of a recorded restrictive covenant requiring that, for the compliance period or for a longer period agreed to by the authority and the owner of the qualified development, the development shall be maintained and operated as a qualified development and shall be in compliance with Tit. VIII of the federal Civil Rights Act of 1968, as amended.
   4.  Upon review of an application, the authority may approve the qualified development for the tax credit program provided in section 16.37C, and issue a tax credit certificate stating the amount of the tax credit the authority determines the applicant is eligible to claim for each year of the credit period.
   5.  Unless otherwise provided in this section or the context clearly requires otherwise, the authority shall determine eligibility for a credit and allocate credits in accordance with the standards and requirements set forth in section 42 of the Internal Revenue Code.
   6.  An applicant that is unsuccessful in receiving a tax credit award during an annual application period may make additional applications during subsequent annual application periods. Such applicants shall be required to submit a new application which shall be reviewed in the same manner as other applications in that annual application period.
    Sec. 3.  NEW SECTION.  16.37C  Iowa housing tax credits —— limits.
   1.  An Iowa housing tax credit shall be allowed against the taxes imposed in chapter 422, subchapters II, III, and V, and in chapter 432, and against the moneys and credits tax imposed in section 533.329, in the amount determined by the authority pursuant to this part. Any tax credit in excess of the taxpayer’s liability for the tax year is not refundable but may be credited to the tax liability for the following five years or until depleted, whichever is earlier.
   2.  An individual may claim a tax credit under this subsection of a partnership, limited liability company, S corporation, estate, or trust electing to have income taxed directly to the individual. The amount claimed by the individual shall be based upon the pro rata share of the individual’s earnings from the partnership, limited liability company, S corporation, estate, or trust.
   3.  In any calendar year, the aggregate amount of all tax credits allocated by the authority shall not exceed fifteen million dollars, plus the sum of the following amounts:
   a.  The total of all unallocated tax credits, if any, for the preceding calendar years.
   b.  The total amount of all previously allocated tax credits that have been recaptured, revoked, canceled, or otherwise recovered by the authority.
   4.  a.  To claim a tax credit under this section, a taxpayer shall include one or more tax credit certificates issued by the authority with the taxpayer’s tax return.
   b.  The tax credit certificate shall contain the taxpayer’s name, address, tax identification number, the amount of the credit including the amount the authority determines the taxpayer is eligible to claim for each year of the credit period, the name of the qualified development, any other information required by the department of revenue, and a place for the name and tax identification number of a transferee and the amount of the tax credit being transferred.
   c.  Tax credit certificates issued under this section may be transferred to any person or entity. Within ninety days of transfer, the transferee shall submit the transferred tax credit certificate to the authority along with a statement containing the transferee’s name, tax identification number, and address, the denomination that each replacement tax credit certificate is to carry, and any other information required by the department of revenue.
   d.  Within thirty days of receiving the transferred tax credit certificate and the transferee’s statement, the authority shall issue one or more replacement tax credit certificates to the transferee. Each replacement tax credit certificate must contain the information required for the original tax credit certificate and must have the same expiration date that appeared in the transferred tax credit certificate. Tax credit certificate amounts of less than the minimum amount established by rule of the Iowa finance authority shall not be transferable.
   e.  A tax credit shall not be claimed by a transferee under this section until a replacement tax credit certificate identifying the transferee as the proper holder has been issued. The transferee may use the amount of the tax credit transferred against the taxes imposed in chapter 422, subchapters II, III, and V, and in chapter 432, and against the moneys and credits tax imposed in section 533.329, for any tax year the original transferor could have claimed the tax credit. Any consideration received for the transfer of the tax credit shall not be included as income under chapter 422, subchapters II, III, and V. Any consideration paid for the transfer of the tax credit shall not be deducted from income under chapter 422, subchapters II, III, and V.
    Sec. 4.  NEW SECTION.  16.37D  Recapture.
   1.  As of the last day of any tax year during the compliance period, if the amount of the qualified basis of a qualified development owned by a taxpayer claiming the credit is less than the amount of the qualified basis as of the last day of the immediately preceding tax year, the amount of the taxpayer’s liability under this part shall be increased by the recapture amount determined using the method under section 42(j) of the Internal Revenue Code.
   2.  If a recapture event occurs, the taxpayer shall include the recaptured proportion of the credit on the return submitted for the tax year in which the recapture event is identified.
    Sec. 5.  NEW SECTION.  16.37E  Compliance monitoring.
   The authority shall monitor and oversee compliance with sections 16.37A through 16.37D and shall report specific occurrences of noncompliance to the department.
    Sec. 6.  NEW SECTION.  16.37F  Report to the general assembly.
   1.  On or before January 31 of each year, the authority shall submit to the general assembly a report that includes all of the following:
   2.  A statement of the number of qualified developments for which the authority issued tax certificates that year.
   3.  A description of each qualified development for which the authority issued a tax certificate that year, including the geographic location of the development, the household type and any specific demographic information available concerning the residents intended to be served by the development, the income levels of residents intended to be served by the development, and the rents or set-asides authorized for each development.
   4.  An analysis of housing market and demographic information that shows how the qualified developments for which the authority has issued tax certificates at any time are addressing the need for affordable housing within the communities those developments are intended to serve, and an analysis of any remaining disparities in the affordability of housing within those communities.
    Sec. 7.  NEW SECTION.  16.37G  Rules.
   The authority and the department shall adopt rules pursuant to chapter 17A as necessary for the implementation and administration of this part.
    Sec. 8.  NEW SECTION.  422.10C  Iowa housing tax credit.
   The taxes imposed under this subchapter, less the credits allowed under section 422.12, shall be reduced by an Iowa housing tax credit allowed under section 16.37C.
    Sec. 9.  Section 422.33, Code 2023, is amended by adding the following new subsection:
   NEW SUBSECTION.  17.  The taxes imposed under this subchapter shall be reduced by an Iowa housing tax credit as allowed under section 16.37C.
    Sec. 10.  Section 422.60, Code 2023, is amended by adding the following new subsection:
   NEW SUBSECTION.  16.  The taxes imposed under this subchapter shall be reduced by an Iowa housing tax credit as allowed under section 16.37C.
    Sec. 11.  NEW SECTION.  432.12P  Iowa housing tax credit.
   The taxes imposed under this chapter shall be reduced by an Iowa housing tax credit allowed under section 16.37C.
    Sec. 12.  Section 533.329, subsection 2, Code 2023, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  n.  The moneys and credits tax imposed under this section shall be reduced by an Iowa housing tax credit allowed under section 16.37C.
    Sec. 13.  CODE EDITOR DIRECTIVE.  The Code editor shall designate sections 16.37A through 16.37G, as enacted by this division of this Act, as a new part within chapter 16, subchapter VII, and may redesignate the new and preexisting parts, replace references to sections 16.37A through 16.37G with references to the new part, and correct internal references as necessary, including references in subchapter or part headnotes.
    Sec. 14.  EFFECTIVE DATE.  This division of this Act takes effect January 1, 2024.
    Sec. 15.  APPLICABILITY.  This division of this Act applies to tax years beginning on or after January 1, 2024.
DIVISION II
FIRST-TIME HOMEBUYER SAVINGS ACCOUNTS 

    Sec. 16.  Section 422.7, subsection 27, paragraph a, subparagraph (1), subparagraph division (a), subparagraph subdivisions (i) and (ii), Code 2023, are amended to read as follows:
   (i)  For married taxpayers who file a joint return and maintain a joint first-time homebuyer savings account, four ten thousand dollars.
   (ii)  For any other account holder, two five thousand dollars.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to an Iowa housing tax credit program and increasing first-time homebuyer tax incentives, and includes effective date and applicability provisions. 
   DIVISION I —— IOWA HOUSING TAX CREDIT PROGRAM. The bill creates an Iowa housing tax credit program available against the individual and corporate income taxes, franchise tax, insurance premium tax, and moneys and credits tax.
   The bill requires the Iowa finance authority (authority) to develop a system for the application, review, and authorization of Iowa housing tax credits. A tax credit may be claimed by a taxpayer for a “qualified development” defined to mean a qualified low-income housing project under section 42(g) of the Internal Revenue Code that is financed by tax-exempt bonds.
   An Iowa housing tax credit may be authorized by the authority if all of the following apply: the tax credit is issued to a taxpayer who has an ownership interest in the qualified development; the tax credit amount is allocated pursuant to a qualified allocation plan adopted by the authority; the tax credit is necessary for the financial feasibility of the qualified development; the amount of the tax credit allocated to an owner shall not exceed 30 percent of the qualified basis of the qualified development; and the qualified development is the subject of a recorded restrictive covenant requiring the qualified development be maintained and operated as a qualified development for a certain number of years.
   The amount of an Iowa housing tax credit award is determined by the authority and may be claimed during the credit period (10 years), and any credit in excess of the taxpayer’s liability for the tax year is not refundable but may be credited to the tax liability for the following five years.
   In any calendar year, the bill limits the aggregate amount of the tax credit to $15 million plus the sum of the total of unallocated tax credits from the preceding calendar year and the previously allocated tax credits that have been revoked, canceled, or recaptured.
   A taxpayer shall claim the credit by including one or more tax certificates issued by the authority with the taxpayer’s return. The bill allows a tax credit certificate to be transferred to any person or entity. The bill requires the transferee to submit the transferred tax credit certificate to the authority within 90 days of the transfer, and requires the authority to issue a replacement tax credit certificate within 30 days of receiving the transferred tax credit certificate.
   The bill allows the authority to recapture tax credit amounts from previously issued tax credits, if on the last day of a taxable year during the compliance period (15 years), if the amount of the qualified basis of a qualified development owned by a taxpayer claiming the credit is less than the amount of the qualified basis as of the last day of the immediately preceding tax year, the amount of the taxpayer’s liability shall be increased by the recapture amount determined using the method under section 42(j) of the Internal Revenue Code. If a recapture event occurs, the bill requires the taxpayer to include the recaptured amount on the return submitted for the tax year in which the recapture event is identified.
   The bill requires the authority to submit a report to the general assembly by January 31 each year, detailing the Iowa housing tax credit program.
   The division takes effect January 1, 2024, and applies to tax years beginning on or after that date. 
   DIVISION II —— FIRST-TIME HOMEBUYER SAVINGS ACCOUNTS. The bill makes changes to the income tax benefits related to contributions made to a first-time homebuyer savings account. 
   Under current law, for married persons filing a joint return an account holder is allowed to deduct the first $4,000 of contributions made to an account during the tax year if the account holder also maintains a joint first-time homebuyer savings account, and for any other person the account holder is allowed to deduct for the first $2,000 of contributions made to such an account during the tax year. The first-time homebuyer savings account annual deduction limits are indexed to inflation and are increased each year. For the 2022 tax year the annual deduction limit for married persons filing a joint return is $4,363, and for all other persons the limit is $2,181. 
   The bill increases the annual deduction limit for first-time homebuyer savings account contributions to $10,000 for married persons filing a joint return, and to $5,000 for any other account holder. The new annual deduction limits in the bill are also indexed to inflation and are increased each year.