Bill Text: HI HB1746 | 2018 | Regular Session | Amended

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Bill Title: Relating To Individual Housing Accounts.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2018-02-16 - Report adopted. referred to the committee(s) on FIN as amended in HD 2 with none voting aye with reservations; none voting no (0) and Representative(s) DeCoite, Ing, Nakamura, Onishi, Woodson excused (5). [HB1746 Detail]

Download: Hawaii-2018-HB1746-Amended.html

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HOUSE OF REPRESENTATIVES	H.B. NO.	1746
TWENTY-NINTH LEGISLATURE, 2018		H.D. 2
STATE OF HAWAII

A BILL FOR AN ACT

 

 

RELATING TO INDIVIDUAL HOUSING ACCOUNTS.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 

    SECTION 1.  The legislature finds that Hawaii has one of the lowest rates of homeownership in the nation.  The 2016 Hawaii housing planning study identified the cost of a down payment as a major barrier for Hawaii residents seeking to purchase a home.  As such, the 2017 state housing functional plan includes assisting first-time homebuyers with down payment savings and financial capacity building as a major policy goal.

    The legislature also finds that Hawaii has the highest rate of homelessness in the nation.  To address this situation, the state homelessness strategic plan identifies increasing the economic stability and self-sufficiency of homeless individuals as one of the State's four strategic goals for homelessness.

    The legislature further finds that individual housing accounts can support asset building for low- to moderate-income families and assist them in saving for a down payment on a first home or for a deposit and first month's rent for a rental unit.  The legislature finds that maximizing the use and benefits of individual housing accounts will assist more people in achieving economic self-sufficiency and housing stability. 

    To encourage the use of individual housing accounts, the State has provided a state income tax deduction for deposits into individual housing accounts, up to a specified amount, when the accounts are held by a federally-insured bank, credit union, or similar traditional financial institution, and when the savings are used for the purpose of purchasing a first home.  However, the legislature finds that a deduction is not available for deposits made into individual housing accounts held by community development financial institutions, which have proven to be particularly successful at incentivizing savings and assisting taxpayers in purchasing a home.  In addition, there is no deduction for deposits made into individual housing accounts intended to help account holders secure a rental housing unit.  The legislature further finds that the maximum allowable state income tax deduction for individual housing accounts has not been updated since 1982.

    The purpose of this Act is to assist the State in meeting its strategic priorities for housing and homelessness, by building the economic self-sufficiency of low- to moderate-income individuals through the greater use of individual housing accounts.  This Act seeks to better incentivize the establishment and use of individual housing accounts by:

     (1)  Authorizing a state income tax deduction for savings in individual housing accounts held by community development financial institutions;

     (2)  Updating the income limits for the individual housing account deduction to reflect current dollar values as well as the savings necessary for a down payment on a home; and

     (3)  Allowing certain amounts that are paid into an individual housing account and are to be used for obtaining rental housing to qualify for a tax deduction.

     SECTION 2.  Section 235-5.5, Hawaii Revised Statutes, is amended to read as follows:

     "§235-5.5  Individual housing accounts.  (a)  There shall be allowed as a deduction from gross income the amount, not to exceed [$5,000,] $15,000, excluding interest paid or accrued thereon, 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.]

     In the case of a married couple filing separate returns, the sum of the deductions allowable to each of them for amounts paid in cash for the taxable year shall not exceed $15,000, excluding interest paid or accrued thereon.  In the case of a married couple filing a joint return, the sum of the deduction allowable for amounts paid in cash for the taxable year shall not exceed $30,000, excluding interest paid or accrued thereon.

     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,] $75,000, excluding interest paid or accrued.  In the case of married individuals [having separate individual housing accounts,] regardless if filing separately or jointly, the sum of [the separate accounts and the deduction] their deductions under this section for all taxable years shall not exceed [$25,000,] $75,000, excluding interest paid or accrued thereon.

     (b)  There shall be allowed as a deduction from gross income the amount, not to exceed $2,500, 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 to obtain rental housing.  No deduction shall be allowed on any amounts distributed more than twenty-four months from the date on which the first contribution is made to the account.  The interest paid or accrued within the taxable year on the account shall not be included in the individual's gross income.

     If the individual for whose benefit the individual housing account was established obtains rental housing in Hawaii with the distribution from the individual housing account, the individual shall report       of the total distribution from the individual housing account used to obtain the rental housing 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.

     For the purposes of this section, the term "rental housing" means a unit that is leased, rented, or occupied by the individual or tenant for whom the deduction will apply.

     [(b)] (c)  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)] (1)  The trustee is a bank, a savings and loan association, a credit union, [or] a depository financial services loan company, or a community development financial institution, 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 [must] may actively make residential real estate mortgage loans in Hawaii;

    [(3)] (2)  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)] (3)  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)] (4)  Except as provided in subsection (i), 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 or to obtain rental housing located in Hawaii, and provides that the instrument of payment is payable to the mortgagor, construction contractor, property owner, property manager, or other vendor of the property purchased[;] or rented; 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)] (d) and [(e); and] (f);

    [(6)] (5)  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[,] established for the purpose of purchasing the individual's first principal residence, the trustee shall so notify in writing the taxpayer and the director.  If the trustee makes the verification required in paragraph [(5)(A),] (4)(A), then the department shall disallow the deduction under subsection (a) and subsections [(c), (e),] (d) and (f) shall not apply to that amount.  If the trustee withholds an amount under paragraph [(5)(B),] (4)(B), then the department shall disallow the deduction under subsection (a) and subsection [(e)] (f) shall apply, but subsection [(c)] (d) shall not apply[.]; and

     (6)  A custodial account that is not a trust shall be treated as a trust for purposes of this section if:

          (A)  The assets of the custodial account are held by a bank, savings and loan association, credit union, depository financial services loan company, or community development financial institution that administers the custodial account consistent with the requirements of this section; and

          (B)  The custodial account would otherwise constitute an individual housing account;

          provided that the custodian of a custodial account treated as a trust under this paragraph shall be treated as the trustee of the account.

     [(c)] (d)  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 or to obtain rental housing in Hawaii for the individual for whose benefit the account was established.

     [(d)] (e)  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)] (f)  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 or obtaining rental housing 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)] (g)  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).

     [(g)]  (h)  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) 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.

     (i)  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)]  (j)  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, 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] the marriage took place; provided that the tax liability defined under subsection (f) shall not be imposed.

     [(i)]  (k)  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, and shall apply to taxable years beginning after December 31, 2018.

 

 

Report Title:

OHA Package; Individual Housing Accounts; Tax Deduction

 

Description:

Increases the cap amounts of the tax deduction for individual housing accounts.  Authorizes use of funds to obtain rental housing.  Authorizes maintenance of accounts in a community development financial institution.  (HB1746 HD2)

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.