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AB-1979 Personal income taxes: gross income exclusion: homeownership savings accounts.(2017-2018)

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Date Published: 04/18/2018 04:00 AM
AB1979:v98#DOCUMENT

Amended  IN  Assembly  April 17, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill No. 1979


Introduced by Assembly Member Members Bonta and Steinorth

January 31, 2018


An act to add Sections 17141.5 and 17204.5 Section 17141.5 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 1979, as amended, Bonta. Personal income taxes: deduction: gross income exclusion: homeownership savings accounts.
The Personal Income Tax Law, in modified conformity with federal income tax laws, allows various exclusions from gross income, and allows various deductions in computing the income that is subject to the taxes imposed by that law, including miscellaneous itemized deductions that are allowed only to the extent that the aggregate amount of those deductions exceeds 2% of adjusted gross income.
This bill, for taxable years beginning on and or after January 1, 2018, would allow a deduction, not to exceed specified amounts, of the amount a qualified taxpayer, as defined, contributed in any taxable year to a homeownership savings account and would exclude from gross income any income earned on the moneys contributed to a homeownership savings account. The bill would provide that a qualified taxpayer may withdraw amounts from a homeownership savings account to pay for qualified homeownership savings expenses, defined as expenses paid or incurred in connection with the purchase of a principal residence in this state. The bill would provide that any amount withdrawn from that account that is not used for these expenses would be included as income for that taxpayer. The bill would define various terms for its purposes. exclude from gross income any income earned on the moneys contributed to a homeownership savings account, as described.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 17141.5 is added to the Revenue and Taxation Code, to read:

17141.5.
 (a) For each taxable year beginning on or after January 1, 2018, gross income does not include, under the same conditions as provided in Section 408 of the Internal Revenue Code, relating to individual retirement accounts, any income accruing earned during the taxable year to on a homeownership savings account as defined in Section 17204.5. account.
(b) For purposes of this section:
(1) “Homeownership savings account” means a trust that meets all of the following requirements:
(A) Is designated as a homeownership savings account by the trustee for the benefit of any person.
(B) Is established by a person, or by persons who are spouses, where the written governing instrument creating the account provides for the following:
(i) All contributions to the account are required to be in cash, including any refunds of taxes paid, and can be made by any person, including, but not limited to, contributions from relatives, employers, or crowdfunding Internet Web sites.
(ii)   The account is established to pay, pursuant to the requirements and limitations of this section, for qualified homeownership savings expenses of the person who is the beneficiary of the account.
(C) Is, except as otherwise required or authorized by this section, subject to the same requirements and limitations as an individual retirement account established under Section 408 of the Internal Revenue Code, relating to individual retirement accounts, and any regulations adopted thereunder.
(D) Is the only homeownership savings account established by the person or spouses who established the account.
(E) The balance of the homeownership savings account does not exceed the maximum balance established for the account. The maximum balance of a homeownership savings account shall be 20 percent of the median home value within the state, as determined by the Department of Housing and Community Development and posted on its Internet Web site, for the year in which the account is created. The Department of Housing and Community Development shall post the annual median home value on or before January 1 annually.
(F) Is closed once the purchase of a principal residence is completed.
(2) “Person” means any individual, or individual’s spouse, who has never had an ownership interest in a principal residence within the meaning of Section 121 of the Internal Revenue Code, relating to exclusion of gain from sale of principal residence, and whose gross income for the taxable year in which the account was created and any taxable year in which a contribution is made does not exceed 120 percent of the area median income.
(3) “Qualified homeownership savings expenses” means a downpayment or closing costs paid or incurred in connection with the purchase of a person’s principal residence within the meaning of Section 121 of the Internal Revenue Code, relating to exclusion of gain from sale of principal residence, in this state for use by the person who is the beneficiary of the homeownership savings account.
(4) “Trustee” shall have the same meaning as that term has under Section 408 of the Internal Revenue Code, relating to individual retirement accounts, and any regulations adopted thereunder.

SEC. 2.Section 17204.5 is added to the Revenue and Taxation Code, to read:
17204.5.

(a)For each taxable year beginning on or after January 1, 2018, there shall be allowed as a deduction an amount equal to the amount contributed by a qualified taxpayer during the taxable year to a homeownership savings account, not to exceed the amounts specified in subdivision (b).

(b)The deduction allowed under subdivision (a) shall not exceed the following amounts:

(1)Thirty thousand dollars ($30,000) for qualified taxpayers filing a joint return, a head of household, and surviving spouses, as defined in Section 17046. For qualified taxpayers whose adjusted gross income, as defined in Section 62 of the Internal Revenue Code, relating to adjusted gross income defined, exceeds one hundred and fifty thousand dollars ($150,000) during the taxable year, the deduction allowed by this section shall be reduced by one dollar ($1) per each four dollars ($4) of adjusted gross income over one hundred and fifty thousand dollars ($150,000).

(2)Fifteen thousand dollars ($15,000) in the case of a qualified taxpayer filing a return other than as described in paragraph (1). For a qualified taxpayer whose adjusted gross income, as defined in Section 62 of the Internal Revenue Code, relating to adjusted gross income defined, exceeds eighty thousand dollars ($80,000) during the taxable year, the deduction allowed by this section shall be reduced by one dollar ($1) per each four dollars ($4) of adjusted gross income over eighty thousand dollars ($80,000).

(c)Any amount withdrawn from a homeownership savings account shall be included in the income of the payee or distributee for the taxable year in which the payment or distribution is made, unless the payment or distribution is used within 120 days of withdrawal to pay for the qualified homeownership savings expenses of a qualified beneficiary.

(d)For purposes of this section:

(1)“Financial institution” means a bank, bank and trust, trust company with banking powers, savings bank, savings association, or credit union organized under the laws of this state, any other state, or the United States; an industrial loan and thrift authorized to accept deposits; or a money market mutual fund registered under the federal Investment Company Act of 1940 and regulated under Rule 2a-7, promulgated by the Securities and Exchange Commission under that act.

(2)“Homeownership savings account” means a trust that meets all of the following requirements:

(A)Is designated as a homeownership savings account by the trustee.

(B)Is established for the exclusive benefit of any qualified beneficiary establishing the account where the written governing instrument creating the account provides for the following:

(i)All contributions to the account are required to be in cash and may be made by any person.

(ii)The account is established to pay, pursuant to the requirements and limitations of this section, for the qualified homeownership savings expenses of a qualified beneficiary.

(C)Is, except as otherwise required or authorized by this section, subject to the same requirements and limitations as an individual retirement account established under Section 408 of the Internal Revenue Code, relating to individual retirement accounts, and any regulations adopted thereunder.

(D)A qualified beneficiary must be designated as such by April 15 of the year following the taxable year in which the account was established and may be the qualified taxpayer. The qualified beneficiary designation may be changed at any time, but no more than one qualified beneficiary may be designated for an account at any one time. For purposes of this subparagraph, married spouses qualify as one beneficiary.

(3)“Qualified beneficiary” means any individual, or individual’s spouse, who has never had an ownership interest in a principal residence within the meaning of Section 121 of the Internal Revenue Code, relating to exclusion of gain from sale of principal residence, during the preceding three-year period ending either on the date the homeownership savings account is established or on the date of the individual’s, or individual’s spouse’s, purchase of the principal residence for which any amount is withdrawn from the homeownership savings account.

(4)“Qualified homeownership savings expenses” means a disbursement listed on a settlement statement for the purchase of a single-family residence by a qualified beneficiary, the downpayment for that residence, and the costs of construction or financing the construction of a single-family residence.

(5)“Qualified taxpayer” means an individual who establishes, individually or jointly with one or more other individuals, a homeownership savings account.

(6)“Single-family residence” means a single-family residence located in this state and owned and occupied by or to be occupied by a qualified beneficiary as the qualified beneficiary’s principal residence, which may include a manufactured home, trailer, mobile home, condominium unit, townhome, or cooperative.

(7)“Trustee” shall have the same meaning as that term has under Section 408 of the Internal Revenue Code, relating to individual retirement accounts, and any regulations adopted thereunder.

(e)For each taxable year beginning on or after January 1, 2019, the Franchise Tax Board shall recompute the adjusted gross income amounts prescribed in paragraphs (1) and (2) of subdivision (b) in the manner described in subdivision (h) of Section 17041, except that the amounts should be adjusted to the nearest one hundred dollars ($100). If adjusted gross income amount ends in fifty dollars ($50), the amount shall be rounded up to the nearest one hundred dollars ($100).

(f)The Franchise Tax Board shall establish a process for qualified taxpayers to notify the Franchise Tax Board of the homeownership savings account, the account holder or holders, transfers, and the qualified beneficiary. This information may be included on a qualified taxpayer’s tax return or any other means deemed appropriate by the Franchise Tax Board.

(g)(1)An individual may jointly own a homeownership savings account with another person if the joint account holders file a joint return.

(2)An individual may be the account holder of more than one homeownership savings account but shall not hold or own multiple accounts that designate the same qualified beneficiary.

(3)An individual may be designated as the qualified beneficiary on more than one homeownership savings account.

(h)(1)The qualified taxpayer shall not use funds in the homeownership savings account to pay expenses of administering the account, except that a service fee may be deducted from the account by the financial institution.

(2)The qualified taxpayer shall submit to the Franchise Tax Board, in the form and manner required by the Franchise Tax Board, detailed information regarding the account, including a list of transactions for the account during the taxable year and the Form 1099 issued by the financial institution for the account for the taxable year and, upon withdrawal of funds from the account, a detailed account of the qualified homeownership savings expenses for which account funds were expended and a statement of the amount of funds remaining in the account, if any.

(3)A qualified taxpayer may withdraw funds, in whole or in part, from a homeownership savings account and deposit funds in another homeownership savings account held by a different financial institution or the same financial institution.

(i)(1)A financial institution is not required to take any action to ensure compliance with this section, including to designate an account, designate qualified beneficiaries, or modify the financial institution’s account contracts or systems in any way; track the use of money withdrawn from homeownership savings account; allocate funds in a homeownership savings account among joint account holders or multiple qualified beneficiaries; or report any information to the Franchise Tax Board or any other state agency that is not otherwise required by law.

(2)A financial institution is not responsible or liable for either determining or ensuring that an account satisfies the requirements of this section or that its funds are used for homeownership savings account expenses or reporting or remitting taxes or penalties related to the use of a homeownership savings account.

SEC. 3.SEC. 2.

 This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.