SB 2552: Income Tax; Individual Housing Accounts; Pre-tax Savings; Maximum Annual Deduction; Maximum Total Deduction; Increase

A BILL FOR AN ACT

RELATING TO THE INDIVIDUAL HOUSING ACCOUNT PROGRAM.

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

     SECTION 1.  The legislature finds that the affordable housing crisis continues to be one of the State's most significant and challenging social problems and is a critical issue for many Hawaii residents.  As the cost of housing continues to rise, the State must assist residents in finding methods of increasing the availability of homeownership.  Saving for a down payment on a home loan continues to be a barrier for many Hawaii residents with few programs available to assist in this endeavor.

     The legislature further finds that contributions to the first-time home buyer savings account will reduce taxable income.  This incentivizes first time home ownership through saving for a down payment and closing costs.

     Accordingly, the purpose of this Act is to increase the maximum annual deduction for contributions into, and maximum account levels for, individual housing accounts, to reflect current housing prices more accurately.

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

     1.  By amending subsections (a) and (b) to read:

     "(a)  There shall be allowed as a deduction from gross income the amount, not to exceed [$5,000,] $20,000, 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] $40,000 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,] $20,000, or [$10,000] $40,000 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,] $200,000, 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,] $200,000, excluding interest paid or accrued thereon.

     (b)  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] $20,000 (or [$10,000] $40,000 in the case of a joint return) or in excess of [$25,000] $200,000 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] the State or any federal agency established for the purpose of insuring accounts in these financial institutions.  The financial institution [must] shall 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 married couple [not] no 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), 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) and (e); 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), and (f) 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) shall apply, but subsection (c) shall not apply."

     2.  By amending subsections (f) and (g) to read:

     "(f)  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] subsection 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)  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].

     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."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect upon its approval, and shall apply to taxable years beginning after December 31, 2026.

Report Title:

Income Tax; Individual Housing Accounts; Pre-tax Savings; Maximum Annual Deduction; Maximum Total Deduction; Increase

Description:

For taxable years beginning 1/1/2027: (1) increases the maximum annual and total allowable deduction for contributions to individual housing accounts for income tax deductions; and (2) increases the maximum allowable contributions for individual housing accounts to qualify for the income tax deductions.  Repeals outdated language applicable to first‑time home purchases made before 1/1/1990, by persons with an individual housing account.  (CD1)

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

A BILL FOR AN ACT

RELATING TO THE INDIVIDUAL HOUSING ACCOUNT PROGRAM.

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

     SECTION 1.  The legislature finds that the affordable housing crisis continues to be one of the State's most significant and challenging social problems and is a critical issue for many Hawaii residents.  As the cost of housing continues to rise, the State must assist residents in finding methods of increasing the availability of homeownership.  Saving for a down payment on a home loan continues to be a barrier for many Hawaii residents with few programs available to assist in this endeavor.

     The legislature further finds that contributions to the first-time home buyer savings account will reduce taxable income.  This incentivizes first time home ownership through saving for a down payment and closing costs.

     Accordingly, the purpose of this Act is to increase the maximum annual deduction for contributions into, and maximum account levels for, individual housing accounts, to reflect current housing prices more accurately.

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

     1.  By amending subsections (a) and (b) to read:

     "(a)  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 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] the State or any federal agency established for the purpose of insuring accounts in these financial institutions.  The financial institution [must] shall 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 married couple [not] no 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), 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) and (e); 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), and (f) 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) shall apply, but subsection (c) shall not apply."

     2.  By amending subsections (f) and (g) to read:

     "(f)  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] subsection 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)  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].

     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."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect on July 1, 3000, and shall apply to taxable years beginning after December 31, 2026.

Report Title:

Income Tax; Individual Housing Accounts; Pre-tax Savings; Maximum Annual Deduction; Maximum Total Deduction; Increase

Description:

For taxable years beginning 1/1/2027, (1) increases the maximum annual and total allowable deduction for contributions to individual housing accounts for income tax deductions and (2) increases the maximum allowable contributions for individual housing accounts to qualify for the income tax deductions.  Repeals outdated language applicable to first-time home purchases made before 1/1/1990, by persons with an individual housing account.  Effective 7/1/3000.  (HD1)

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

A BILL FOR AN ACT

RELATING TO THE INDIVIDUAL HOUSING ACCOUNT PROGRAM.

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

     SECTION 1.  The legislature finds that the affordable housing crisis continues to be one of the State's most significant and challenging social problems and is a critical issue for many Hawaii residents.  As the cost of housing continues to rise, the State must assist residents in finding methods of increasing the availability of homeownership.  Saving for a down payment on a home loan continues to be a barrier for many Hawaii residents with few programs available to assist in this endeavor.

     The legislature further finds that contributions to the first-time home buyer savings account will reduce taxable income.  This incentivizes first time home ownership through saving for a down payment and closing costs.

     Accordingly, the purpose of this Act is to increase the maximum annual deduction for contributions into, and maximum account levels for, individual housing accounts, to reflect current housing prices more accurately.

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

     1.  By amending subsections (a) and (b) to read:

     "(a)  There shall be allowed as a deduction from gross income the amount, not to exceed [$5,000,] $17,200, 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] $34,400 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,] $17,200, or [$10,000] $34,400 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,] $86,000, 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,] $86,000, excluding interest paid or accrued thereon.

     (b)  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] $17,200 (or [$10,000] $34,400 in the case of a joint return) or in excess of [$25,000] $86,000 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] the State or any federal agency established for the purpose of insuring accounts in these financial institutions.  The financial institution [must] shall 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 married couple [not] no 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), 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) and (e); 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), and (f) 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) shall apply, but subsection (c) shall not apply."

     2.  By amending subsections (f) and (g) to read:

     "(f)  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] subsection 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)  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].

     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."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect on July 1, 2050, and shall apply to taxable years beginning after December 31, 2026.

Report Title:

Individual Housing Accounts; Pre-tax Savings; Maximum Annual Deduction; Increase

Description:

For taxable years beginning 1/1/2027, increases the maximum annual deduction for contributions to, and maximum account levels for, individual housing accounts.  Effective 7/1/2050.  (SD1)

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

A BILL FOR AN ACT

relating to the individual housing account program.

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

     SECTION 1.  The legislature finds that the affordable housing crisis continues to be one of the State's most significant and challenging social problems and is a critical issue for many Hawaii residents.  As the cost of housing continues to rise, the State must assist residents in finding methods of increasing the availability of homeownership.  Saving for a down payment on a home loan continues to be a barrier for many Hawaii residents with few programs available to assist in this endeavor.

     The legislature further finds that contributions to the first-time home buyer savings account will reduce taxable income.  This incentivizes first time home ownership through saving for a down payment and closing costs.

     Accordingly, the purpose of this Act is to increase the maximum annual deduction for contributions into, and maximum account levels for, individual housing accounts, to reflect current housing prices more accurately.

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

     1.  By amending subsections (a) and (b) to read:

     "(a)  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 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] the State or any federal agency established for the purpose of insuring accounts in these financial institutions.  The financial institution [must] shall 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 married 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), 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) and (e); 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), and (f) 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) shall apply, but subsection (c) shall not apply."

      2.  By amending subsections (f) and (g) to read:

     "(f)  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] subsection 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)  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].

     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."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2026.

Report Title:

Individual Housing Accounts; Pre-tax Savings; Maximum Annual Deduction; Increase

Description:

For taxable years beginning 1/1/2027, increases the maximum annual deduction for contributions to, and maximum account levels for, individual housing accounts.

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

STAND. COM. REP. NO. 2906

Honolulu, Hawaii

RE:     S.B. No. 2552

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Ways and Means, to which was referred S.B. No. 2552, S.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO THE INDIVIDUAL HOUSING ACCOUNT PROGRAM,"

begs leave to report as follows:

     The purpose and intent of this measure is to assist first-time homebuyers in the State.

     More specifically, this measure increases the maximum annual deduction for contributions into, and maximum account levels for, individual housing accounts, to more accurately reflect current housing prices.

     Your Committee received written comments in support of this measure from the Office of Hawaiian Affairs, a member of the Maui County Council, Chamber of Commerce Hawaii, Hawaii Association of REALTORS, Holomua Collaborative, Housing Hawaii's Future, and Mortgage Bankers Association of Hawaii.

     Your Committee received written comments on this measure from the Department of Taxation.

     Your Committee finds that the affordable housing crisis continues to be one of the State's most significant and challenging social problems and a critical issue for many Hawaii residents.  Your Committee also finds that saving for a downpayment on a home loan continues to be a barrier for many Hawaii residents, with few programs available to assist in this endeavor.  Your Committee notes that contributions to an individual housing account, under section 235-5.5, Hawaii Revised Statutes, reduces taxable income, which incentivizes first-time homeownership through saving for a downpayment and closing costs.  The changes made by this measure will further support homebuyers and help to address the State's affordable housing challenges.

     As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2552, S.D. 1, and recommends that it pass Third Reading.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,

STAND. COM. REP. NO. 2402

Honolulu, Hawaii

RE:     S.B. No. 2552

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Housing, to which was referred S.B. No. 2552 entitled:

"A BILL FOR AN ACT RELATING TO THE INDIVIDUAL HOUSING ACCOUNT PROGRAM,"

begs leave to report as follows:

     The purpose and intent of this measure is to increase the maximum annual deduction for contributions to, and maximum account levels for, individual housing accounts for taxable years beginning January 1, 2027.

     Your Committee received testimony in support of this measure from the Office of Hawaiian Affairs, one member of the Kauaʻi County Council, Hawaiʻi Association of REALTORS, Housing Hawaiʻi's Future, and three individuals.

     Your Committee received comments on this measure from the Department of Taxation and Tax Foundation of Hawaii.

     Your Committee finds that saving for a downpayment remains a significant challenge for many residents of the State, especially for first-time homebuyers.  The Individual Housing Account (IHA) program was designed to help first-time homebuyers make downpayments.  However, with the current median single-family home priced at over $1 million and the median condominium priced at over $600,000, a twenty percent downpayment would be over $200,000 and over $125,000, respectively, making existing maximum annual deductions for the IHA program insufficient.  Notably, the IHA program has experienced minimal adoption, with only one hundred one participants in 2006.  This measure increases the maximum annual deduction for the IHA program to help first-time homebuyers afford a downpayment.

     Your Committee has amended this measure by:

     (1)  Inserting the following maximum annual deduction amounts for contributions and maximum account levels:

          (A)  $17,200 paid to an individual housing account for an individual for each taxable year or to each taxpayer for a married couple filing separate returns;

          (B)  $34,400 paid to an individual housing account for a married couple filing jointly for each taxable year; and

          (C)  $86,000 for the maximum allowable deduction for an individual for all taxable years;

     (2)  Inserting an effective date of July 1, 2050, to encourage further discussion; and

     (3)  Making a technical, nonsubstantive amendment for the purposes of clarity and consistency.

     As affirmed by the record of votes of the members of your Committee on Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2552, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2552, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Housing,