HOUSE OF REPRESENTATIVES |
H.B. NO. |
2747 |
TWENTY-NINTH LEGISLATURE, 2018 |
H.D. 2 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO HOMEOWNERSHIP.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that homeownership creates strong communities through economic growth. Homeownership helps families to build equity and enjoy stability. Homeowners have a greater sense of security, continuity, belonging, and pride in their communities. However, saving for a down payment is often cited as the biggest hurdle for first-time home buyers, particularly for young people grappling with student loan debt. The 2016 Hawaii Housing Planning Study found that twenty-eight per cent of those interested in buying a home could not afford the down payment.
The legislature further finds that individual housing accounts help first-time homebuyers save money for a down payment. However, due to the rising cost of buying a home in Hawaii, the current ceiling for the aggregate total that can be saved in an individual housing account is too low.
The purpose of this Act is to improve individual housing accounts to help lower- and moderate-income families save for a down payment to purchase a home.
SECTION 2. Section 235-5.5, Hawaii Revised Statutes, is amended to read as follows:
"§235-5.5
Individual housing accounts. (a) [There] For individual housing
accounts established prior to January 1, 2019, there shall be allowed as a
deduction from gross income the amount, not to exceed $5,000, paid in cash
during the taxable year by an individual taxpayer to an individual housing
account established for the individual's benefit to provide funding for the
purchase of the individual's first principal residence. A deduction not to exceed $10,000 shall be
allowed for a married couple filing a joint return. No deduction shall be allowed on any amounts
distributed less than three hundred sixty-five days from the date on which a
contribution is made to the account. Any
deduction claimed for a previous taxable year for amounts distributed less than
three hundred sixty-five days from the date on which a contribution was made
shall be disallowed and the amount deducted shall be included in the previous
taxable year's gross income and the tax reassessed. The interest paid or accrued within the
taxable year on the account shall not be included in the individual's gross
income. For purposes of this section,
the term "first principal residence" means a residential property
purchased with the payment or distribution from the individual housing account
which shall be owned and occupied as the only home by an individual who did not
have any interest in, individually, or whose spouse did not have any interest
in, if the individual is married, a residential property within the last five
years of opening the individual housing account.
In the case of a married couple filing separate returns, the sum of the deductions allowable to each of them for the taxable year shall not exceed $5,000, or $10,000 for a joint return, for amounts paid in cash, excluding interest paid or accrued thereon.
The amounts paid in cash allowable as a deduction under this section to an individual for all taxable years shall not exceed $25,000, excluding interest paid or accrued. In the case of married individuals having separate individual housing accounts, the sum of the separate accounts and the deduction under this section shall not exceed $25,000, excluding interest paid or accrued thereon.
(b) For individual housing accounts established
after December 31, 2018, there shall be allowed as a deduction from gross
income the amount, not to exceed
$ , paid in cash during the
taxable year by an individual taxpayer to an individual housing account
established for the individual's benefit to provide funding for the purchase of
the individual's first principal residence.
A deduction from gross income not to exceed
$ shall be allowed for a
married couple filing a joint return. No
deduction shall be allowed:
(1) On any amounts distributed less than three
hundred sixty-five days from the date on which a contribution is made to the
account; provided that any deduction claimed for a previous taxable year for
amounts distributed less than three hundred sixty-five days from the date on
which a contribution was made shall be disallowed and the amount deducted shall
be included in the previous taxable year's gross income and the tax reassessed,
and that the interest paid or accrued within the taxable year on the account
shall not be included in the individual's gross income;
(2) To any individual taxpayer, unless the
taxpayer and the taxpayer's spouse, if the taxpayer is married, have in the
first taxable year a deduction is claimed under this section a household income
at or below one hundred twenty per cent of the area median family income
established by the United States Department of Housing and Urban Development;
and
(3) To any individual taxpayer, unless the
taxpayer and the taxpayer's spouse, if the taxpayer is married, have in the
first taxable year a deduction is claimed under this section completed
homebuyer education conducted by a housing counseling agency approved by the
United States Department of Housing and Urban Development.
For purposes of
this section, the term "first principal residence" means a
residential property purchased with the payment or distribution from the
individual housing account which shall be owned and occupied as the only home
by an individual who did not have any interest in, individually, or whose spouse
did not have any interest in, if the individual is married, a residential
property within the last three years of opening the individual housing account.
In the case of
a married couple filing separate returns, the sum of the deductions allowable
to each of them for the taxable year shall not exceed
$ , for amounts paid in cash,
excluding interest paid or accrued thereon.
The amounts
paid in cash allowable as a deduction under this section to an individual for
all taxable years shall not exceed $ ,
excluding interest paid or accrued. In
the case of married individuals having separate individual housing accounts,
the sum of each separate account and the deduction under this section shall not
exceed $ , excluding interest
paid or accrued thereon.
[(b)] (c)
[For] With respect to individual housing accounts
established prior to January 1, 2019, for purposes of this section, the
term "individual housing account" means a trust created or organized
in Hawaii for the exclusive benefit of an individual, or, in the case of a
married individual, for the exclusive benefit of the individual and spouse
jointly, but only if the written governing instrument creating the trust meets
the following requirements:
(1) Contributions shall not be accepted for the taxable year in excess of $5,000 (or $10,000 in the case of a joint return) or in excess of $25,000 for all taxable years, exclusive of interest paid or accrued;
(2) The trustee is a bank, a savings and loan association, a credit union, or a depository financial services loan company, chartered, licensed, or supervised under federal or state law, whose accounts are insured by the Federal Deposit Insurance Corporation, the National Credit Union Administration, or any agency of this State or any federal agency established for the purpose of insuring accounts in these financial institutions. The financial institution must actively make residential real estate mortgage loans in Hawaii;
(3) The assets of the trust shall be invested only in fully insured savings or time deposits. Funds held in the trust may be commingled for purposes of investment, but individual records shall be maintained by the trustee for each individual housing account holder that show all transactions in detail;
(4) The entire interest of an individual or married couple for whose benefit the trust is maintained shall be distributed to the individual or couple not later than one hundred twenty months after the date on which the first contribution is made to the trust;
(5) Except as provided in subsection [(g),]
(j), the trustee shall not distribute the funds in the account unless
the trustee:
(A) Verifies that the money is to be used for the purchase of a first principal residence located in Hawaii, and provides that the instrument of payment is payable to the mortgagor, construction contractor, or other vendor of the property purchased; or
(B) Withholds an amount equal to ten per cent of
the amount withdrawn from the account and remits this amount to the director
within ten days after the date of the withdrawal. The amount withheld shall be applied to the
liability of the taxpayer under subsections [(c)] (e) and [(e);]
(g); and
(6) If any amounts are distributed before the
expiration of three hundred sixty-five days from the date on which a
contribution is made to the account, the trustee shall so notify in writing the
taxpayer and the director. If the
trustee makes the verification required in paragraph (5)(A), then the
department shall disallow the deduction under subsection (a) and subsections [(c),]
(e), [(e),] (g), and [(f)] (h) shall not
apply to that amount. If the trustee
withholds an amount under paragraph (5)(B), then the department shall disallow
the deduction under subsection (a) and subsection [(e)] (g) shall
apply, but subsection [(c)] (e) shall not apply.
(d) With respect to individual housing accounts
established after December 31, 2018, for purposes of this section, the term
"individual housing account" means a trust created or organized in
Hawaii for the exclusive benefit of an individual, or, in the case of a married
individual, for the exclusive benefit of the individual and spouse jointly, but
only if the written governing instrument creating the trust meets the following
requirements:
(1) Contributions shall not be accepted for the
taxable year in excess of $ for
an individual (or $ in the case
of a joint return) or in excess of $
for all taxable years, exclusive of interest paid or accrued;
(2) The trustee is a bank, a savings bank, a
savings and loan association, a credit union, a community development financial
institution, or a depository financial services loan company, chartered,
licensed, certified, or supervised under federal or state law, whose accounts
are insured by the Federal Deposit Insurance Corporation, the National Credit
Union Administration, or any agency of this State or any federal agency
established for the purpose of insuring accounts in these financial
institutions. The financial institution
may actively make residential real estate mortgage loans in Hawaii;
(3) The assets of the trust shall be invested
only in insured savings or time deposits.
Funds held in the trust may be commingled for purposes of investment,
but individual records shall be maintained by the trustee for each individual
housing account holder that show all transactions in detail and such records as
necessary to qualify for pass-through deposit insurance under title 12 Code of
Federal Regulations sections 330.5 and 330.7;
(4) The entire interest of an individual or
married couple for whose benefit the trust is maintained shall be distributed
to the individual or couple not later than months
after the date on which the first contribution is made to the trust;
(5) Except as provided in subsection (j), the
trustee shall not distribute the funds in the account unless the trustee:
(A) Verifies that:
(i) The individual taxpayer, or the taxpayer
and the taxpayer's spouse, if the taxpayer is married, have completed homebuyer
education conducted by a housing counseling agency approved by the United
States Department of Housing and Urban Development; and
(ii) The money is to be used for the purchase of
a first principal residence located in Hawaii, and provides that the instrument
of payment is payable to the mortgagor, construction contractor, or other
vendor of the property purchased; or
(B) Withholds an amount equal to ten per cent
of the amount withdrawn from the account and remits this amount to the director
within ten days after the date of the withdrawal. The amount withheld shall be applied to the
liability of the taxpayer under subsections (e) and (g); and
(6) If any amounts are distributed before the
expiration of three hundred sixty-five days from the date on which a
contribution is made to the account, the trustee shall so notify in writing the
taxpayer and the director. If the
trustee makes the verifications required in paragraph (5)(A), then the
department shall disallow the deduction under subsection (b) and subsections
(e), (g), and (i) shall not apply to that amount. If the trustee withholds an amount under
paragraph (5)(B), then the department shall disallow the deduction under
subsection (b) and subsection (g) shall apply, but subsection (e) shall not apply.
[(c)] (e) Any contributions paid or distributed out of
an individual housing account shall be included in gross income by the
individual for whose benefit the account was established for the taxable year
in which the payment or distribution is received, unless the amount is used
exclusively in connection with the purchase of the first principal residence in
Hawaii for the individual for whose benefit the account was established.
[(d)] (f) The transfer of an individual's interest in
an individual housing account to a spouse under a dissolution of marriage
decree or under a written instrument incident to a dissolution of marriage
shall not be considered a taxable transfer made by the individual, and the
interest, at the time of the transfer, shall be treated as part of an
individual housing account of the transferee, and not of the transferor. After the transfer, the account shall be
treated, for purposes of this section, as maintained for the benefit of the
transferee.
[(e)] (g) If a distribution from an individual housing
account to an individual for whose benefit the account was established is made
and not used in connection with the purchase of the first principal residence
in Hawaii for the individual, the tax liability of the individual under this
chapter for the taxable year in which the distribution is received shall be
increased by an amount equal to ten per cent of the amount of the distribution
which is includable in the individual's gross income for the taxable year.
If, during any taxable year, the individual uses the account or any portion thereof as security for a loan, the portion so used shall be treated as if it had been distributed to that individual.
[(f)] (h) If the individual for whose benefit the
individual housing account was established purchases a residential property in
Hawaii with the distribution from the individual housing account:
(1) Before January 1, 1990, and if the individual sells in any manner or method or by use of any instrument conveying or transferring the residential property, the gross income of the individual under this chapter for the taxable year in which the residential property is sold, conveyed, or transferred, whichever is applicable, shall include an amount equal to the amount of the distribution from the individual housing account, and in addition, the gross income of the individual shall be increased by an amount equal to ten per cent of the total distribution from the individual housing account; or
(2) After December 31, 1989, the individual shall report one-tenth of the total distribution from the individual housing account used to purchase the residential property as gross income in the taxable year in which the distribution is completed and in each taxable year thereafter until all of the distribution has been included in the individual's gross income at the end of the tenth taxable year after the purchase of the residential property. If the individual sells in any manner or method or by use of any instrument conveying or transferring the residential property, the gross income of the individual under this chapter for the taxable year in which the residential property is sold, conveyed, or transferred, whichever is applicable, shall include an amount equal to the amount of the distribution from the individual housing account not previously reported as gross income, and in addition, the tax liability of the individual shall be increased by an amount equal to ten per cent of the total distribution from the individual housing account. If the individual sells the residential property in any manner as provided in this paragraph after all of the distribution has been included in the individual's gross income at the end of the tenth taxable year after the purchase of the residential property, the tax liability of the individual shall not be increased by an amount equal to ten per cent of the total distribution from the individual housing account.
An individual who purchased a residential property in Hawaii with the distribution from an individual housing account before January 1, 1990, who is subject to paragraph (1) may elect to report as provided in paragraph (2). The election shall be made before January 1, 1991. If the individual makes the election, the individual shall report one-tenth of the total distribution from the individual housing account as gross income in the taxable year in which the election occurs and in each taxable year thereafter until all of the distribution has been included in gross income as provided by paragraph (2). If the individual making the election sells the residential property in any manner as provided in paragraph (2), then the individual shall include as income the amount of the distribution not previously reported as income and increase the individual's tax liability as provided in the second sentence of paragraph (2), except when the third sentence of paragraph (2) applies.
In the alternative, any individual subject to paragraph (2) who established the individual housing account before January 1, 1990, may elect within one year after the date of purchase, to be subject to paragraph (1).
This
subsection shall apply to individual housing accounts established prior to
January 1, 2019.
(i) If the individual for whose benefit an individual housing account was established after December 31, 2018 and for which a deduction was claimed under this section purchases a residential property in Hawaii with the distribution from the individual housing account, and if the individual sells in any manner or method or by use of any instrument conveying or transferring the residential property, the gross income of the individual under this chapter for the taxable year in which the residential property is sold, conveyed, or transferred, whichever is applicable, shall include an amount equal to the amount of the distribution from the individual housing account, and in addition, the gross income of the individual shall be increased by an amount equal to ten per cent of the total distribution from the individual housing account; provided that the amount included in gross income shall be reduced by ten per cent for each full taxable year the individual, or the individual's spouse, occupies the residential property as a first principal residence.
[(g)] (j) No tax liability shall be imposed under this
section if:
(1) The payment or distribution is attributable to the individual dying or becoming totally disabled; or
(2) Residential property subject to subsection [(f)]
(h) or (i) is transferred by will or by operation of law or sold due to
the death or total disability of an individual or individual's spouse,
subject to the following:
An individual shall not be considered to be totally disabled unless proof is furnished of the total disability in the form and manner as the director may require.
Upon the death of an individual for whose benefit an individual housing account has been established, the funds in the account shall be payable to the estate of the individual; provided that if the account was held jointly by the decedent and a spouse of the decedent, the account shall terminate and be paid to the surviving spouse; or, if the surviving spouse so elects, the spouse may continue the account as an individual housing account. Upon the total disability of an individual for whose benefit an individual housing account has been established, the individual or the individual's authorized representative may elect to continue the account or terminate the account and be paid the assets; provided that if the account was held jointly by a totally disabled person and a spouse of that person, then the spouse or an authorized representative may elect to continue the account or terminate the account and be paid the assets.
[(h)] (k) If the individual for whose benefit the
individual housing account was established subsequently marries a person who
has or has had any interest in residential property[,] within the
three years prior to the marriage, the individual's housing account shall
be terminated, the funds therein shall be distributed to the individual, and
the amount of the funds shall be includable in the individual's gross income
for the taxable year in which such marriage took place; provided that the tax
liability defined under [subsection (f)] subsections (h) and (i)
shall not be imposed.
[(i)] (l) The trustee of an individual housing account
shall make reports regarding the account to the director and to the individual
for whom the account is maintained with respect to contributions,
distributions, and other matters as the director may require under rules. The reports shall be filed at a time and in a
manner as may be required by rules adopted under chapter 91. A person who fails to file a required report
shall be subject to a penalty of [$10] $
to be paid to the director for each instance of failure to file."
SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 4. This Act shall take effect on January 1, 2050.
Report Title:
Homeownership; Individual Housing Accounts; Deductions
Description:
Changes the annual contribution amount, aggregate contribution amount, and number of taxable months for individual housing accounts established after December 31, 2018; allows Community Development Financial Institutions to administer individual housing accounts established after December 31, 2018; and requires homebuyer education. (HB2747 HD2)
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.