2021 -- S 0478

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LC002269

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2021

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A N   A C T

RELATING TO TAXATION – THE FIRST-TIME HOMEBUYERS SAVINGS ACCOUNT

ACT

     Introduced By: Senators Pearson, Cano, Miller, Coyne, and Euer

     Date Introduced: March 04, 2021

     Referred To: Senate Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Title 44 of the General Laws entitled "TAXATION" is hereby amended by

adding thereto the following chapter:

CHAPTER 70

FIRST-TIME HOMEBUYERS SAVINGS ACCOUNT ACT

     44-70-1. Short title.

     This chapter shall be known and may be cited as the "The First-Time Homebuyer Savings

Account Act."

     44-70-2. Legislative findings.

     The general assembly finds and declares that

     (1) Saving for a down payment and closing costs for the purchase of a first home can be

difficult.

     (2) The establishment of first-time homebuyer savings accounts will provide an

opportunity for Rhode Island residents to save funds for home ownership.

     (3) The establishment of such accounts will allow Rhode Island residents to benefit from

the tax incentive provided for qualified first-time homebuyers and to provide residents with

meaningful incentives to save for the purchase of a first home within the state.

     44-70-3. Definitions.

     As used in this chapter:

     (1) "Account holder" means an individual who establishes, individually or jointly, with one

or more other individuals, a first-time homebuyer savings account.

     (2) "Allowable closing costs" means a disbursement listed on a settlement statement for

the purchase of a home in Rhode Island by a qualified beneficiary.

     (3) "Eligible costs" means the down payment and allowable closing costs for the purchase

of a home in Rhode Island by a qualified beneficiary.

     (4) "Financial institution" means any bank, trust company, mortgage lender, savings

institution, industrial loan association, consumer finance company, credit union, or any benefit

association, insurance company, safe deposit company, money market mutual fund, or similar

entity authorized to do business in Rhode Island.

     (5) "First-time homebuyer" means an individual who resides in Rhode Island and has not

owned or purchased, either individually or jointly, a home during a period of three (3) years prior

to the date of the purchase of a home.

     (6) "First-time homebuyer savings account" or "account" means an account with a financial

institution that an account holder designates as a first-time home buyer savings account on the

account holder's Rhode Island income tax return for tax year 2021 or any tax year thereafter,

pursuant to this chapter for the purpose of paying or reimbursing eligible costs for the purchase of

a home in Rhode Island by a qualified beneficiary.

     (7) "Home" means a dwelling owned and occupied by a qualified beneficiary as the

qualified beneficiary's primary residence, which may include a single-family dwelling, multi-

family dwelling, manufactured home, trailer, mobile home, condominium unit, or cooperative.

     (8) "Qualified beneficiary" means a first-time homebuyer who is designated as the qualified

beneficiary of an account designated by the account holder as a first-time homebuyer savings

account.

     (9) "Settlement statement" means the statement of receipts and disbursements for a

transaction related to real estate, including a statement prescribed under the Real Estate Settlement

Procedures Act of 1974, 12 U.S.C. 2601 et seq., as amended, and regulations thereunder.

     44-70-4. Establishment of first-time homebuyer savings account.

     (a) Designation and use of first-time home buyer savings account. Any individual may

open an account with a financial institution and designate the account, in its entirety, as a first-time

homebuyer savings account to be used to pay or reimburse a qualified beneficiary’s eligible costs

for the purchase of a home in Rhode Island.

     (b) Designation of qualified beneficiary. An account holder must designate no later than

April 15 of the year following the tax year during which the account is established, a first-time

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homebuyer as the qualified beneficiary of the first-time homebuyer savings account. The account

holder may designate himself or herself as the qualified beneficiary and may change the designated

qualified beneficiary at any time, but there may not be more than one qualified beneficiary at any

one time.

     (c) Joint account holders. An individual may jointly own a first-time homebuyer savings

account with another person if the joint account holders file a joint income tax return.

     (d) Account holder of multiple accounts. An individual may be the account holder of more

than one first-time homebuyer savings account. However, an account holder cannot have multiple

accounts that designate the same qualified beneficiary.

     (1) Qualified beneficiary of more than one account. An individual may be designated as

the qualified beneficiary on more than one first-time homebuyer savings account.

     (2) Contributions to account. Only cash and marketable securities may be contributed to a

first-time homebuyer savings account. Subject to the limitations of § 44-70-4(d), persons other than

the account holder may contribute funds to a first-time homebuyer savings account. There is no

limitation on the amount of contributions that may be made to or retained in a first-time homebuyer

savings account.

     44-70-5. Account holder responsibilities.

     (a) The account holder:

     (1) Shall not use funds held in a first-time homebuyer savings account to pay expenses of

administering the account, except that a service fee may be deducted from the account by a financial

institution in which the account is held;

     (2) Shall submit to the division of taxation, with the account holder's Rhode Island income

tax return on forms prepared by the division of taxation, detailed information regarding the first-

time home buyer savings account, including a list of transactions for the account during the tax

year; and the Form 1099 issued by the financial institution for such account.

     (3) Shall submit to the division of taxation, upon a withdrawal of funds from a first-time

homebuyer savings account, a detailed account of the eligible costs toward which the account funds

were applied and a statement of the amount of funds remaining in the account, if any.

     (b) Transfer of funds. An account holder may withdraw funds, in whole or in part, from a

first-time homebuyer savings account and deposit the funds in a new first-time homebuyer savings

account held by a different financial institution or the same financial institution.

     44-70-6. Financial institutions.

     (a) A financial institution shall not be required to:

     (1) Designate an account as a first-time homebuyer savings account, or designate the

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qualified beneficiaries of an account, in the financial institution's account contracts or systems or

in any other way;

     (2) Track the use of money withdrawn from a first-time homebuyer savings account;

     (3) Allocate funds in a first-time homebuyer savings account among joint account holders

or multiple qualified beneficiaries; or

     (4) Report any information to the division of taxation or any other governmental agency

that is not otherwise required by law.

     (b) A financial institution is not responsible or liable for:

     (1) Determining or ensuring that an account satisfies the requirements to be a first-time

homebuyer savings account;

     (2) Determining or ensuring that funds in a first-time homebuyer savings account are used

for eligible costs; or

     (3) Reporting or remitting taxes or penalties related to the use of a first-time homebuyer

savings account.

     (c) Upon being furnished proof of the death of the account holder and such other

information required by the contract governing the first-time homebuyer savings account, a

financial institution shall distribute the principal and accumulated interest or other income in the

account in accordance with the terms of the contract governing the account.

     44-70-7. Deduction and exclusion from taxable income.

     (a) Deduction of contributions. Except as otherwise provided in this chapter and subject to

the limitations under this section, there shall be deducted from taxable income of an account holder

for Rhode Island income tax purposes the amount contributed to a first-time homebuyer savings

account during each tax year, subject to the limitations of § 44-70-7(b), not to exceed ten thousand

dollars ($10,000) for an account holder who files an individual tax return or twenty thousand dollars

($20,000) for joint account holders who file a joint tax return.

     (b) Exclusion of earnings. Except as otherwise provided in this chapter and subject to the

limitations under this section, there shall be excluded from taxable income of an account holder for

Rhode Island income tax purposes the amount of earnings, including interest and other income on

the principal, from the first-time homebuyer savings account during the tax year.

     (c) Limitations on deduction and exclusion from taxable income. An account holder may

claim the deduction and exclusion under this section:

     (1) For a period not to exceed fifteen (15) years;

     (2) For an aggregate total amount of principal and earnings, not to exceed three hundred

thousand ($300,000) dollars during that fifteen (15) year period; and

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     (3) Only if the principal and earnings of the account remain in the account until a

withdrawal is made for eligible costs related to the purchase of a home by a qualified beneficiary,

except as otherwise provided in § 44-70-7(b) of this section.

     (d) Non-account holders. A person other than the account holder who deposits funds in a

first-time homebuyer savings account shall not be entitled to the deduction and exclusion provided

for under this chapter.

     (e) Remaining funds. Any funds in a first-time homebuyer savings account not expended

on eligible costs by December 31 of the last year of the fifteen (15) year period shall thereafter be

included in the account holder's taxable income.

     (f) Application to alternative basis taxation. The deduction and exclusion from taxable

income provided for by this chapter shall apply to any alternative bases for calculating taxable

income for Rhode Island income tax purposes.

     44-70-8. Penalty for withdrawal for purpose other than eligible costs.

     (a) Except as otherwise authorized by this chapter, if the account holder withdraws any

funds from a first-time homebuyer savings account for a purpose other than eligible costs for the

purchase of a home:

     (1) Those funds shall be included in the account holder's taxable income; and

     (2) The account holder shall pay a penalty to the division of taxation equal to ten percent

(10%) of the amount withdrawn. Such penalty shall not apply to funds withdrawn from an account

that were:

     (i) Withdrawn by reason of the account holder's death or disability;

     (ii) A disbursement of assets of the account pursuant to a filing for protection under the

United States Bankruptcy Code, 11 U.S.C. § 101 et seq.; or

     (iii) Transferred from an account established under this chapter into another account

established under this chapter.

     (b) The division of taxation shall prepare forms for the designation of an account with a

financial institution to serve as a first-time homebuyer savings account; and the designation of a

qualified beneficiary of a first-time home buyer savings account; and

     (c) For an account holder to annually submit to the division of taxation detailed information

regarding the first-time homebuyer savings account, including, but not limited to, a list of

transactions for the account during the tax year, and identifying any supporting documentation that

is required to be maintained by the account holder.

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     SECTION 2. This act shall take effect upon passage.

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LC002269

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO TAXATION – THE FIRST-TIME HOMEBUYERS SAVINGS ACCOUNT

ACT

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     This act would authorize the creation of first-time homebuyer savings account from which

savings to purchase a home could be deducted from an individual's or couple's personal income

taxes.

     This act would take effect upon passage.

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LC002269

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