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AB-1865 Personal income taxes: exclusion: homeownership savings accounts.(2023-2024)



Current Version: 04/18/24 - Amended Assembly

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AB1865:v97#DOCUMENT

Amended  IN  Assembly  April 18, 2024
Amended  IN  Assembly  February 15, 2024

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill
No. 1865

Introduced by Assembly Members Jim Patterson, Jim Patterson, Alanis, and Hoover
(Coauthors: Assembly Members Gallagher, Lackey, Joe Patterson, and Sanchez)

January 18, 2024

An act to add and repeal Sections 17141.7 and 17204.5 Section 17141.7 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 1865, as amended, Jim Patterson Jim Patterson. Personal income taxes: exclusion: deduction: 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. generally defines “gross income” as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income for purposes of computing tax liability.
This bill, on and after January 1, 2024, and before January 1, 2029, 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 The bill would provide that any amount withdrawn from that account that is not used for these expenses would be included as income for that taxpayer.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. 2025, and before January 1, 2030, would exclude from gross income any amount accruing to a first-time homeownership savings account, as defined, whose beneficiary is a qualified taxpayer. The bill would also, for taxable years beginning on or after January 1, 2025, and before January 1, 2030, exclude from gross income any amount withdrawn from a first-time homeownership savings account that is used to pay for qualified homeownership savings expenses of a qualified taxpayer who established the account. The bill would define a first-time homeownership savings account as an account with a financial institution that is designated as a first-time homeownership savings account by the person establishing the account that meets specified requirements.
Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would include additional information required for any bill authorizing a new tax expenditure.
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 17141.7 is added to the Revenue and Taxation Code, to read:

17141.7.
 (a) For each taxable year beginning on or after January 1, 2024, 2025, and before January 1, 2029, 2030, 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 during the taxable year to a homeownership savings account, as defined in Section 17204.5. include the following:
(1) Any amount accruing to a first-time homeownership savings account whose beneficiary is a qualified taxpayer.
(2) Any amount withdrawn from a first-time homeownership savings account that is used to pay for the qualified homeownership savings expenses of a qualified taxpayer who established the account.
(b) For purposes of this section, the following definitions shall apply:
(1) “First-time homeownership savings account” means an account with a financial institution that meets all of the following requirements:
(A) Is designated as a first-time homeownership savings account by the accountholder.
(B) Is established by a qualified taxpayer, or by qualified taxpayers who are spouses, for the exclusive benefit of a qualified taxpayer establishing the account.
(C) The written governing instrument creating the account provides for the following:
(i) All contributions to the account are required to be in cash.
(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 taxpayer establishing the account.
(D) Is the only first-time homeownership savings account established by the qualified taxpayer.
(2) “Principal residence” has the same meaning as that term is used in Section 121 of the Internal Revenue Code.
(3) “Qualified homeownership savings expenses” means expenses, including a downpayment or closing costs, paid or incurred in connection with the purchase of a qualified taxpayer’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 that qualified taxpayer who established the first-time homeownership savings account.
(4) “Qualified taxpayer” means an individual, or individual’s spouse, who had no present ownership interest in a principal residence during the preceding three-year period ending either on the date of the individual’s, or individual’s spouse’s, contribution to a first-time homeownership savings account 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 first-time homeownership savings account.
(c) Any amount withdrawn from a first-time homeownership savings account shall be included in the income of the qualified taxpayer for the taxable year in which the payment or distribution is made, unless the payment or distribution is used to pay for the qualified homeownership savings expenses of a qualified taxpayer who established the account.

(b)

(d) (1) For purposes of complying with Section 41, the goal, purpose, objective, performance indicators, and data collection requirements for the exclusion allowed by this section shall be as specified in subdivision (e) of Section 17204.5. as it applies to the exclusion provided by this section, the Legislature finds and declares as follows:
(A) The specific goal, purpose, and objective of the exclusion is to provide assistance to those seeking to save to buy a home. Home ownership is the key to a strong and healthy California but there is little state and federal assistance for first-time home buyers.
(B) The performance indicators for the Legislature to use in determining whether the exclusion achieves its stated goal shall be the following:
(i) The number of taxpayers excluding income pursuant to this section.
(ii) The average amount of the income excluded.
(2) (A) By May 1, 2027, and annually thereafter, the Franchise Tax Board shall submit a written report, in compliance with Section 9795 of the Government Code, to the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Budget, the Senate and Assembly Committees on Appropriations, the Senate Committee on Revenue and Taxation, and the Assembly Committee on Revenue and Taxation. The report shall detail, to the extent the information is available, the number of taxpayers excluding income pursuant to this section and the average amount of income excluded.
(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542.

(c)

(e) This section shall remain in effect only until December 1, 2029, 2030, and as of that date is repealed.

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, 2024, and before January 1, 2029, there shall be allowed a deduction in the 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)Twenty thousand dollars ($20,000) for qualified taxpayers filing a joint, head of household, or surviving spouse, as defined in Section 17046, return.

(2)Ten thousand dollars ($10,000) in the case of a qualified taxpayer filing a return other than as described in paragraph (1).

(c)Any amount withdrawn from a homeownership savings account shall be included in the income of the qualified taxpayer for the taxable year in which the payment or distribution is made, unless the payment or distribution is used to pay for the qualified homeownership savings expenses of a qualified taxpayer who established the account.

(d)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.

(B)Is established by a qualified taxpayer, or by qualified taxpayers who are spouses, for the exclusive benefit of any qualified taxpayer 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.

(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 taxpayer establishing 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 qualified taxpayer.

(2)“Qualified homeownership savings expenses” means expenses, including a downpayment or closing costs, paid or incurred in connection with the purchase of a qualified taxpayer’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 that qualified taxpayer who established the homeownership savings account.

(3)“Qualified taxpayer” means any individual, or individual’s spouse, who had no present 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 of the individual’s, or individual’s spouse’s, contribution to a homeownership savings account 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 individual’s, or individual’s spouse’s, 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.

(e)(1)For purposes of complying with Section 41, as it applies to the exclusion allowed by Section 17141.7 and the deduction allowed by this section, the Legislature finds and declares as follows:

(A)The specific goal, purpose, and objective of the exclusion and deduction is to provide assistance to those seeking to save to buy a home. Home ownership is the key to a strong and healthy California but there is little state and federal assistance for first time home buyers.

(B)To measure whether the exclusion and the deduction achieve their intended purpose, the Franchise Tax Board shall prepare a written report on the following information, to the extent the information is available:

(i)The number of taxpayers allowed a deduction pursuant to this section.

(ii)The average amount of the deduction allowed.

(2)By May 1, 2026, and annually thereafter, the Franchise Tax Board shall provide the written report prepared pursuant to paragraph (1) to the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Budget, the Senate and Assembly Committees on Appropriations, the Senate Committee on Governance and Finance, and the Assembly Committee on Revenue and Taxation.

(3)The disclosure requirements of this subdivision shall be treated as exceptions to Section 19542.

(f)This section shall remain in effect only until December 1, 2029, and as of that date is repealed.

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.