SF 2326 (LSB 6762XS (4) 91)

SENATE FILE 2326

BY  TRONE GARRIOTT

A BILL FOR

An Act modifying first-time homebuyers savings accounts, and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.7, subsection 27, paragraph a, subparagraph (1), unnumbered paragraph 1, Code 2026, is amended to read as follows:
   The Except for an employer account holder, the amount of contributions made by an account holder during the tax year to the account holder’s first-time homebuyer savings accounts, not to exceed the following annual limit:
    Sec. 2.  Section 422.7, Code 2026, is amended by adding the following new subsection:
   NEW SUBSECTION.  27A.  Subtract, to the extent included, the amount of funds withdrawn from a first-time homebuyer savings account that were contributed by an employer on behalf of the taxpayer pursuant to chapter 541B, plus any interest that has accrued on such contribution, that were used for the payment or reimbursement of the taxpayer’s eligible home costs in connection with a qualified home purchase in accordance with chapter 541B.
    Sec. 3.  Section 422.35, Code 2026, is amended by adding the following new subsection:
   NEW SUBSECTION.  15.  a.  Subject to the restrictions in paragraph “b”, subtract, to the extent included, income from interest received from the taxpayer’s first-time homebuyer savings accounts established pursuant to chapter 541B.
   b.  The subtraction in paragraph “a” shall not be allowed to a taxpayer upon one of the following dates, whichever occurs first:
   (1)  January 1 of the tenth calendar year after the calendar year during which the taxpayer first opened a first-time homebuyer savings account for the designated beneficiary.
   (2)  The date on which funds within the taxpayer’s first-time homebuyer savings account are withdrawn for purposes other than the payment or reimbursement of the designated beneficiary’s eligible home costs in connection with a qualified home purchase. Any amount transferred between different first-time homebuyer savings accounts of the taxpayer shall not be considered a withdrawal for purposes of this subparagraph as long as the designated beneficiary does not change.
   c.  (1)  Add, to the extent previously excluded under paragraph “a”, the amount withdrawn during the tax year from the taxpayer’s first-time homebuyer savings account for purposes other than the payment or reimbursement of the designated beneficiary’s eligible home costs in connection with a qualified home purchase.
   (2)  For purposes of this paragraph “c”, any amount remaining in the taxpayer’s first-time homebuyer savings account on January 1 of the tenth calendar year after the calendar year during which the taxpayer first opened a first-time homebuyer savings account shall be considered immediately withdrawn under subparagraph (1).
   (3)  For purposes of this paragraph “c”, the transfer of amounts between different first-time homebuyer accounts of the taxpayer by a person other than the taxpayer shall not cause such transfer to be considered a withdrawal under subparagraph (1) as long as the designated beneficiary does not change.
   d.  For any amount considered a withdrawal required to be added to net income pursuant to paragraph “c”, the taxpayer shall be assessed a penalty equal to ten percent of the amount of the withdrawal. The penalty shall not apply to withdrawals made by reason of the death of the designated beneficiary, change of employment status with the designated beneficiary, or to withdrawals made pursuant to a garnishment, levy, or other order, including but not limited to an order in bankruptcy following a filing for protection under the federal bankruptcy code, 11 U.S.C. §101 et seq.
   e.  For purposes of this subsection, “designated beneficiary”, “eligible home costs”, “first-time homebuyer savings account”, and “qualified home purchase” mean the same as defined in section 541B.2.
    Sec. 4.  Section 541B.2, subsection 1, Code 2026, is amended to read as follows:
   1.  “Account holder” means an individual who establishes, either individually or jointly with the individual’s spouse, or an employer, who establishes a first-time homebuyer savings account pursuant to section 541B.3.
    Sec. 5.  Section 541B.3, subsection 1, Code 2026, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  d.  An employer may open an interest-bearing savings account with a financial institution and designate the entire account as a first-time homebuyer savings account for the purpose of paying or reimbursing the eligible home costs in connection with a qualified home purchase of an employee who is the designated beneficiary. The first-time homebuyer savings account designation shall be made on forms provided by the department and shall be submitted on or before the date prescribed in section 422.21 for making and filing an individual income tax return, excluding extensions, or the date for making and filing an individual income tax return determined by the director pursuant to an order issued under section 421.17, subsection 30, applicable to the tax year in which the account is opened.
    Sec. 6.  Section 541B.3, subsection 2, paragraph a, Code 2026, is amended to read as follows:
   a.  The account holder shall designate one individual as beneficiary of the first-time homebuyer savings account. The designation shall be made on forms provided by the department and shall be submitted on or before the date prescribed in section 422.21 for making and filing an individual income tax return, excluding extensions, or the date for making and filing an individual income tax return determined by the director pursuant to an order issued under section 421.17, subsection 30, applicable to the tax year in which the designation is made. The account holder may change the designated beneficiary of the first-time homebuyer savings account at any time, except an employer account holder shall only change the designated beneficiary if the employment status of the designated beneficiary changes with the employer account holder.
    Sec. 7.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2026, for tax years beginning on or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   Currently, individuals may open an interest-bearing savings account and designate the account as a first-time homebuyer savings account (account) for the purpose of financing the purchase of a single-family residence in this state by a first-time homebuyer. The account may be established individually, or jointly with a spouse if the married couple files a joint Iowa income tax return. The contributions to the account are deductible from the individual income tax. Currently, contributions are deductible in the amount of $4,744 for married persons, and $2,372 for individuals, and any interest in the account accrues state tax free.
   This bill modifies the account by allowing an employer (employer account holder) to open an account on behalf of an employee and make contributions to the account on behalf of an employee who is a first-time homebuyer.
   The bill specifies the amount of funds withdrawn from the account that are contributed by the employer account holder that are used by an individual taxpayer to purchase a home as a first-time homebuyer are deductible against the individual income tax by the individual taxpayer.
   Unlike individual account holders, the bill prohibits an employer account holder from taking a deduction against income taxes for any contributions made to the account.
   In the same manner as individual account holders, the bill assesses a penalty against an employer account holder in the amount of 10 percent of any withdrawal amount if the amount is withdrawn for a purpose other than for a purchase by a first-time homebuyer. The penalty is not assessed upon death of the first-time homebuyer, change of employment status with the first-time homebuyer and the employer account holder, or upon withdrawals made pursuant to a garnishment, levy, or bankruptcy.
   The bill and current law require the account to be closed after a period of 10 years, and the account is subject to penalties and tax if the moneys in the account are not used in the purchase of a home by a first-time homebuyer within the 10-year period.
   The bill applies retroactively to tax years beginning on or after January 1, 2026.