Date of Hearing: May 16, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1317

Author:(Brough) – As Amended Ver:May 8, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes a homeowner savings account (HSA) for qualified low-income taxpayers and excludes from gross income any income earned during the taxable year from the HSA. The maximum HSA balance is 20% of the median home price in California and an HSA can only be established by and contributed into by a taxpayer with a gross income less than 80% of the area median income (AMI). Finally, this bill requires the Legislative Analyst’s Office (LAO) to study the effectiveness of the HSA and its impact on homeownership rates.

FISCAL EFFECT:

1. Annual General Fund revenue loss of $20,000 in 2020-21 and $90,000 in 2021-22. These revenue losses will grow in later years as HSA balances grow, exceeding $500,000 a year by 2025-26.
2. Costs, likely in the tens of thousands of dollars, for LAO to conduct the required evaluation of the HSA program.

COMMENTS:

1. Purpose. According to the author, this bill will expand access to affordable housing by allowing Californians to deposit money from multiple contributors into a homeowner savings account. This will help renters save money to make a down payment or to help pay for closing costs.
2. Existing IRA allowance. Both federal and state laws already authorize first-time homebuyers to withdraw a limited amount of IRA funds without penalty. In the case of a traditional IRA, the maximum amount of IRA funds a homebuyer may withdraw without the penalty is $10,000.
3. Recent legislation. This committee has heard, and held on it Suspense File, a number of pieces of legislation establishing HSAs. Those bills include: AB 1779 (Bonta) and AB 52 (Steinorth), of the 2017-18 Legislative Session, and AB 1736 (Steinorth), of the 2015-16 Legislative Session.
4. Section 41 costs. Section 41 of the Revenue and Taxation Code calls for tax expenditure legislation to include the bill’s goals and measurements of success, which will allow the Legislature to evaluate a tax expenditure’s effectiveness in later years. As noted in this committee’s analysis of AB 263 (Burke), of the 2019-20 Legislative Session, these reporting and data collection requirements could end up costly if the requested data is not easily obtainable by the identified agency. For AB 1317, LAO must analyze the effectiveness of the HSA program, including its impact on homeownership rates. This is a comprehensive and substantial reporting requirement that will generate costs for LAO.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: May 6, 2019

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 1317 (

Author:Brough) – As Amended Ver:April 30, 2019

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Personal income taxes: gross income exclusion: homeownership savings accounts

SUMMARY: Establishes a homeownership savings account (HSA) for qualified low-income taxpayers and excludes from gross income any income earned during the taxable year from an HSA. Specifically, this bill:

1. Excludes from gross income, on or after January 1, 2019, any income earned during the taxable year from an HSA.
2. Defines a "homeownership savings account" as a trust that meets the following conditions:
   1. Is designated as a HSA by the trustee for the benefit of any qualified taxpayer;
   2. Is established by a qualified taxpayer, where the written governing instrument creating the account provides for the following:
      1. Requires all contributions to the HSA be in cash, including any refunds of taxes paid, and allows any person to make the contributions, including, but not limited to, contributions from relatives, employers, or crowdfunding internet websites; and,
      2. Establishes the account to pay for "qualified homeownership savings expenses" of the qualified taxpayer who is the beneficiary of the account;
   3. Is, except as otherwise provided, subject to the same requirements and limitations as an individual retirement account (IRA) established under Internal Revenue Code (IRC) Section 408, and any applicable regulations;
   4. Is the only HSA established by the qualified taxpayer who established the account;
   5. The HSA's maximum balance may not exceed 20% of the median home value within the state, as determined by the Department of Housing and Community Development (HCD) and posted on its internet website, for the year in which the account is created;
   6. Is established by a qualified taxpayer whose gross income, for the taxable year in which the account is established does not exceed 80% of the area median income (AMI) of a city and county and limits contributions to a HSA only in taxable years in which the qualified taxpayer's gross income does not exceed 80% of AMI.; and,
   7. Is closed once the purchase of a principal residence is complete.
3. Defines a "qualified taxpayer" as any individual, individual's spouse, or individuals who are spouses who have never had an ownership interest in a principal residence within the meaning of IRC Section 121.
4. Defines "qualified homeownership savings expenses" as the downpayment and closing costs paid or incurred in connection with the purchase of a qualified taxpayer's principal residence within the meaning of IRC Section 121 in this state for use by the qualified taxpayer who is the HSA's beneficiary.
5. Defines a "trustee" in the same manner as provided for under IRC Section 408, and any regulations adopted thereunder.
6. Requires HCD to post the annual median home value within California each year on or before January 1 on its internet website.
7. Takes effect immediately as a tax levy.

EXISTING LAW:

1. Provides for two types of IRAs under federal law, to which state law automatically conforms: traditional IRAs and Roth IRAs.
2. Limits the total amount of qualified contributions to both traditional and Roth IRAs to the lesser of $5,500 ($6,500 for taxpayers 50 years of age or older), or the taxpayer's taxable compensation for the year.
3. Provides that amounts held in a traditional IRA are generally includible in gross income when withdrawn. In contrast, qualified distributions from a Roth IRA are excludable from gross income (although interest earned on contributions is taxable if withdrawn for a non- qualified distribution).
4. Provides that withdrawals from a traditional IRA and non-qualified withdrawals of interest income from a Roth IRA are generally subject to an additional tax of 10% under federal law and 2.5% under state law if withdrawn prior to age 59 1⁄2, death, or disability, with some exceptions. Most notably, the taxpayer is not subject to the early withdrawal tax if the withdrawal is used for first-time homebuyer expenses of up to $10,000. Such first-time homebuyer expenses of up to $10,000 are also included as "qualified distributions" from a Roth IRA.

FISCAL EFFECT: Pending

COMMENTS:

1. The author has provided the following statement in support of this bill:

California's housing crisis has left our state with home values and rents that are the most expensive in the nation, and they continue to rise. The lack of affordable housing has forced many potential homeowners to rent instead of purchase a home. According to the Public Policy Institute of California, homeownership rates in California have fallen and our rates are significantly lower than the rest of the nation. AB 1317 will increase access to affordable housing by allowing Californians to deposit money from multiple contributors into a homeownership savings account. Housing, among many issues, is a determining factor for people to decide if they will stay in California or not. Currently, 30 percent of homeowners and 46 percent of renters spend more than 35 percent of their total income on housing. By helping renters save money to make a down payment or to help pay for closing costs, we can make the idea of owning a home in California more tangible.

1. In support of this bill, the California Credit Union League notes:

[T]his effort assists Californians in their quest to purchase a home. Often, the largest hurdle for first-time homebuyers is saving for the upfront costs of purchasing a home such as the down payment. AB 1317 will provide potential homeowners with an opportunity to plan and save for their future homeownership goals.

1. Committee Staff Comments:
   1. What would this bill do? This bill would allow HSAs to be created for a beneficiary. Money from multiple contributors, including the beneficiary-taxpayer, could be deposited and the income earned from the account, such as interest on a certificate of deposit or dividends from stock, would be state income tax-free.
      1. Income limits: This bill limits HSAs to taxpayers with an income that does not exceed 80% of AMI in the year the HSA is established. Generally, this income threshold is considered "low income". Additionally, subsequent HSA-contributions are allowed only in years where the taxpayer has an income that does not exceed 80% of AMI. The comparative tax saving benefits from an income exclusion are generally lower for taxpayers that fall into a lower tax bracket, than they would otherwise be for a taxpayer with a higher income and a higher tax bracket.
      2. Maximum balance: This bill limits the HSA fund balance to 20% of the statewide annual median home value in the year the account is opened. In March 2019, the California Association of Realtors reported that the median sales price of an existing single family detached home in California was $565,880. Twenty percent of this amount would be $113,175.
   2. Who is likely to benefit? Given the income limitations to both establish the HSA and make additional contributions in future years, this bill may tend to benefit low-income taxpayers who are recipients of gifts of cash, such as parents to a child, wedding gifts, or crowdfunding endeavors. It would be difficult for a taxpayer of limited means to save the 20% downpayment and have sufficient income to qualify for a home loan to make a home purchase given the income limits this bill imposes to qualify for HSAs. However, the 80% AMI limitation was imposed when this bill was heard in the prior Committee.
   3. Calculating the 20% cap: This bill limits the fund balance to 20% of the statewide annual median home value in the year the account is opened. Absent a downturn in real estate values, capping the HSA balance at 20% of home prices in the year the account is established will, in turn, frustrate the purpose of the HSA, which is to save the necessary 20% downpayment for a future home purchase, when prices would likely be higher.
   4. Statewide median values vs. sales price: This bill refers to an annual median home value, but it does not specify a specific point in time during the year. Values change from month to month. Moreover, this bill refers to "value" rather than "price." Typically, statewide referenced median amounts are based on the sales prices of those homes sold during a particular time period, rather than the statewide median value of all homes. Additionally, while HCD publishes annual area median incomes for housing program purposes, Committee staff is unaware if HCD currently publishes any such statistic as to home values.
   5. Tax-advantaged savings accounts and retirement plans: Congress has authorized several types of retirement savings plans that qualify for reduced or deferred income taxes to encourage workers to save for retirement. For example, traditional IRAs allow for investment of a portion of wages on a pre-tax basis that remains untaxed until the money is withdrawn. Roth IRA investment contributions are made on an after-tax basis, but allow for tax-free qualified distributions (with interest earned on contributions subject to tax and penalty if withdrawn for a non-qualified distribution).
   6. The IRA "first-time homebuyer" withdrawal exception: Existing federal law imposes a 10% withdrawal penalty on early distributions made from an IRA to a taxpayer under the age of 59 1⁄2. California imposes a similar penalty, but at the rate of 2.5%. However, recognizing that some significant event might require a person to withdraw money from their retirement account earlier than expected, Congress has provided for a waiver of the early withdrawal penalty in some situations, to which California has conformed. Most notably, an exception from the penalty applies to distributions up to $10,000 that are used for first-time home purchases, and such distributions are also included as a "qualified distribution" from a Roth IRA. The creation of a separate HSA may allow taxpayers to keep these tax advantaged savings accounts untouched for their original retirement-related purpose.
   7. Conformity issues: California generally conforms to federal law regarding income exclusions. In general, state conformity with federal law promotes greater simplicity and eases administration of complex tax laws. This bill would bring California further out of conformity with federal law as the income excluded by this bill would still be subject to federal income tax. In the absence of similar federal treatment, taxpayers will need to keep separate accounting for state and federal tax purposes.
   8. Requirements and limitations: This bill specifies that the requirements and limitations set forth in IRC Section 408, relating to traditional IRAs, shall apply to HSAs. This bill, however, creates an HSA with tax benefits similar to Roth IRA accounts under IRC Section 408A. It is unclear how the limitations set forth under IRC Section 408 would apply to an HSA that operates more like a Roth IRA.
   9. Lack of penalties: This bill does not contain penalty provisions if the taxpayer withdraws funds that are not used to purchase a home or if the fund balance exceeds 20% of the state median home value. As such, it may be possible for taxpayers to use this as a tax-free investment vehicle for purposes unrelated to a home purchase. The Committee may wish to include a penalty for amounts withdrawn and used for purposes other than a home purchase.
   10. Suggested amendments: Committee staff recommends the following amendments, which the author has prepared and agreed to make in the next Committee given the timing constraints associated with this bill's double-referral:
       1. Delay to contributions made on or after January 1, 2020: This bill allows the gross income exclusion to apply to income earned on or after January 1, 2019. Normally, tax expenditures (such as exclusion from gross income) are designed to encourage taxpayers to take actions they may not otherwise undertake. Committee staff suggests amendments to delay the exclusion to income earned on HSAs made on or after January 1, 2020.
       2. Specify median home price as of a specific month: Committee staff recommends this bill to be amended to require HCD to publish by January, the median sales price of single family residences in California in the month of September of the prior year as the basis to establish a taxpayer's HSA fund balance cap.
       3. Maximum cap balance: Committee staff recommends that the fund balance cap be set at 20% of either the median home price in the year the account is established or the median home price in the prior year, whichever is higher, to ensure the funds in the HSA are sufficient for a downpayment in the year the home is purchased consistent with this bill's goal.
       4. Add sunset date and Section 41 provisions: The author has prepared the necessary amendments to comply with this Committee's Tax Expenditure policy.
   11. Funds for homeownership programs: In 2018, the Legislature passed a package of bills to address the housing affordability crisis, which includes:
       1. SB 3 (Beall), Chapter 365, Statutes of 2017, the Veterans and Affordable Housing Bond Act of 2018. In November 2018, voters approved this bond act as Proposition 1. The bond includes a total of $450 million for homeownership programs, with $150 million dedicated to the California Housing Finance Agency (CalHFA) for down payment assistance for first-time homebuyers and $300 million for the CalHOME program to fund homeownership programs including self-help mortgage assistance.
       2. SB 2 (Atkins), Chapter 364, Statutes of 2017, which creates a permanent funding source for affordable housing programs through a $75 recording fee on real estate documents (excluding those at the time of sale of a property); directs 70% of the funding in year two and beyond to locals to address affordable housing needs, including homeownership.
   12. Double-referral: This bill was double-referred to the Assembly Committee on Housing and Community Development, which passed this bill, as amended by a vote of 8 to 0 on April 24, 2019. For additional discussion of this bill's provisions, please refer to the analysis prepared by the Assembly Committee on Housing and Community Development.
   13. Prior legislation:
       1. AB 1779 (Bonta), of the 2017-18 Legislative Session, would have established a similar HSA, but extended eligibility to persons whose income did not exceed 120% of AMI. AB 1779 was held on the Assembly Committee on Appropriations' Suspense File.
       2. AB 1758 (Steinorth), of the 2017-18 Legislative Session, would have also created HSAs. AB 1758 was never heard by the Housing and Community Development Committee.
       3. AB 53 (Steinorth), of the 2017-18 Legislative Session, would have also created HSAs for contributions and interest earned. AB 53 was held on the Assembly Committee on Appropriations' Suspense File.
       4. AB 1736 (Steinorth), of the 2015-16 Legislative Session, would have also created HSAs limited to taxpayers with an AMI of 80% and to person who never owned a home. AB 1736 was held on the Assembly Committee on Appropriations' Suspense File.
       5. AB 1164 (Bogh), of the 2005-06 Legislative Session, would have created similar Individual Homeownership Development Accounts, for both deductions and interest earned, limited to $10,000. AB 1164 was never heard by this Committee and returned to the Chief Clerk.
       6. AB 1573 (Garcia), of the 2005-06 Legislative Session, would have created similar Individual Development Accounts, for both deductions and interest earnings, limited to $5,000 per year for three years limited to persons with incomes of $75,000 if single, and $120,000 for a family. AB 1573 was never heard by this Committee and returned to the Chief Clerk.
       7. SB 553 (Dutton), of the 2005-06 Legislative Session, would have created similar Individual Homeownership Development Accounts, for both deductions and interest earnings. SB 553 was heard by the Senate Revenue and Taxation Committee but no action was taken.

REGISTERED SUPPORT / OPPOSITION:

Support

California Building Industry Association

California Credit Union League

Opposition

None on file

Analysis Prepared by: Rose Marie Kinnee / REV. & TAX. / (916) 319-2098

Date of Hearing: April 24, 2019

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 1317 (

Author:Brough) – As Introduced Ver:February 22, 2019

SUBJECT: Personal income taxes: gross income exclusion: homeownership savings accounts

SUMMARY: Creates a homeownership savings account (HSA) to provide similar tax benefits to an individual retirement account (IRA) and allows for contributions from a taxpayer, relatives, employers, or Internet crowdfunding Web sites. Specifically, this bill:

1. Exempts from gross income any income that accrues from a HSA beginning January 1, 2019.
2. Defines a "homeownership savings account" to mean a trust that meets all of the following requirements:
3. Designated as a HSA by the trustee for the benefit of any person;
4. Established by a person, or by persons who are spouses;
5. All contributions to the account are required to be in cash including any refunds of taxes paid and can be made by any person including relatives, employers, and Internet crowdfunding Web sites;
6. The account is established to pay for the "qualified homeownership savings" expenses of the person who is the beneficiary of the account;
7. Except as otherwise stated, is subject to the same requirements and limitations as an IRA;
8. The only HSA established by the person who established the account;
9. The balance of the HSA does not exceed the maximum balance; and
10. The maximum balance of the HSA shall be 20% of the median home value in the state as determined by the Department of Housing and Community Development (HCD).
11. Requires HCD to post the annual median home value on its website, on or before January 1, 2019, and each year thereafter.
12. Defines "person" to mean any individual, or individual's spouse who does not own a principal residence nor has owned one in the last three years from the date the HSA is established or on the date the individual or individual's spouse purchase a principal residence using the funds from the HSA.
13. Defines "qualified homeownership savings expenses" to mean expenses, including a downpayment or closing costs, for the purchase of a principal residence in California for the person who is the beneficiary of the HSA.
14. Defines "trustee" to mean the same as for individual retirement accounts.
15. Provides that this act creates a tax levy and takes effect immediately.

EXISTING LAW:

1. Provides for two types of IRAs under federal law, to which state law automatically conforms: traditional IRAs and Roth IRAs. The total amount of qualified contributions to both traditional and Roth IRAs are limited to the lesser of $5,500 ($6,500 for taxpayers 50 years of age or older), or the taxpayer's taxable compensation for the year.
2. Allows an income tax deduction for contributions (other than a rollover contribution) made only to a traditional IRA. In contrast, contributions made to a Roth IRA are not deductible and are subject to tax.
3. Provides that amounts held in a traditional IRA are generally includible as gross income when withdrawn. In contrast, qualified distributions from a Roth IRA are excludable from gross income (although interest earned on contributions is taxable if withdrawn for a non-qualified distribution).
4. Provides that withdrawals from a traditional IRA and non-qualified withdrawals of interest income from a Roth IRA are generally subject to an additional tax of 10% under federal law and 2.5% under state law if withdrawn prior to age 59 ½, death, or disability, with some exceptions. Most notably, the taxpayer is not subject to the early withdrawal tax if the withdrawal is used for first-time homebuyer expenses of up to $10,000. Such first-time homebuyer expenses of up to $10,000 are also included as "qualified distributions" from a Roth IRA.
5. Allows various other deductions and exclusions under federal law, to which state law generally conforms, in computing taxable income. Individuals may claim the standard deduction, a fixed dollar amount intended to approximate deductible living expenses, or itemized deductions for various specific expenses, including miscellaneous itemized deductions that are only allowed to the extent that they exceed 2% of adjusted gross income (AGI). Contributions to or withdrawals from a savings account for homeownership expenses are not generally deductible or excludible from income under federal or state law.
6. Specifies that the California Housing Finance Agency (CalHFA) provide down payment assistance in the form of deferred payment, low-interest; and junior mortgage loans which are designed to reduce principle and interest payments to make financing affordable for first time low and moderate income homebuyers. In most cases, CalHFA programs may be used in conjunction with other first-time homebuyer programs, including programs offered by nonprofit entities.

FISCAL EFFECT: Unknown.

COMMENTS:

Background: California has the third lowest homeownership rate in the country. Between 2006 and 2014, the number of housing units that were owner-occupied fell by almost 250,000 while the number of renter-occupied units increased by about 850,000. According to the Public Policy Institute of California, “much of the increase in rental units occurred among formerly owned single family detached housing units." Despite this trend the state continues to make its most significant investment in housing through the mortgage interest deduction on primary residences. The Franchise Tax Board (FTB) estimates that the impact of the mortgage interest deduction on state revenues for 2016-2017 was $5 billion dollars.

Funds for homeownership programs: Last year, the Legislature passed a package of bills to address the housing affordability crisis that includes SB 3 (Beall) Chapter 365, Statutes of 2017, the Veterans and Affordable Housing Bond Act of 2018, which will go before the voters in November of 2018. The bond includes a total of $450 million for homeownership programs. If approved, $150 million will go to CalHFA for downpayment assistance for first-time homebuyers and $300 million for the CalHOME program to fund homeownership programs, including self-help mortgage assistance. SB 2 (Atkins) Chapter 364, Statutes of 2017, which creates a permanent funding source for affordable housing program through a $75 recording fee on real estate documents (excluding those at the time of sale of a property) directs 70% of the funding in year two and beyond to locals to address affordable housing needs, including homeownership.

This bill would allow for the creation of a HSA and would exclude from a taxpayer's gross income any income accruing during the taxable year to a HSA, similar to an IRA. The bill would allow anyone to set up a HSA on behalf of another person and anyone to contribute to the savings account including a beneficiary, relative, employer, or Internet crowd funding site. The savings account is limited to purchase of a principal residence in California by an individual who has not owned a home in the last three years. The amount that can be deposited in the account is capped at 20% of the state median home value as determined by HCD. In 2016, according to the California Association of Realtors, the statewide median, existing single-family home sale price was $526,580. As of the first quarter of 2016, the California Association of Realtors estimates that only 34% of households in California can afford to purchase the median priced home in the state. Based on a median home sales price of $526,580, an individual could save over $100,000 in a HSA under this bill.

Tax-Advantaged Savings Accounts and Retirement Plans: Congress has authorized several types of retirement savings plans that qualify for reduced or deferred income taxes to encourage workers to save for retirement. For example, traditional IRAs allow for investment of a portion of wages on a pre-tax basis that remains untaxed until the money is withdrawn. Roth IRA investment contributions are made on an after-tax basis, but allow for tax-free qualified distributions (with interest earned on contributions subject to tax and penalty if withdrawn for a non-qualified distribution).

Existing federal law imposes a 10% withdrawal penalty on early distributions made from an IRA to a taxpayer under the age of 59 ½. California imposes a similar penalty but at the rate of 2.5%. However, recognizing that some significant event might require people to withdraw money from their retirement accounts earlier than expected, Congress has provided for a waiver of the early withdrawal penalty in some situations, to which California has conformed. Most notably, an exception from the penalty applies to distributions up to $10,000 that are used for first-time home purchases, and such distributions are also included as a "qualified distribution" from a Roth IRA.

The "First-Time Homebuyer" Exception: Under federal and state law, first-time homebuyers are authorized to make penalty-free withdrawals of up to $10,000 of IRA funds. The $10,000 limitation applies on an individual basis, meaning that both the taxpayer and the taxpayer's spouse may qualify individually for this first-time homebuyer exception, potentially doubling the amount of money withdrawn without penalty. The definition of "first-time homebuyer" is broad and includes a taxpayer who previously owned a home, so long as the taxpayer has no present interest in a main home during the two-year period ending on the date of acquisition of the home which the distribution is being used to buy. Furthermore, the taxpayer does not have to purchase the residence for her/himself, as the penalty-free withdrawal could be used to help a child, grandchild, or parent buy a home. Given the existing allowance of penalty-free withdrawals from IRAs for first-time homebuyers, the Committee may wish to consider whether creating a new tax-advantaged savings account for homeownership is necessary.

Purpose of this bill: According to the author, “California’s housing crisis has left our state with home values and rents that are the most expensive in the nation, and they continue to rise.

In a report by the California Association of Realtors, as of February, the median price for a single-family home for the three most populated counties in California are as follows: $805,380 in Orange County, $605,000 in San Diego, and $527,280 in Los Angeles County.

The lack of affordable housing has forced many potential homeowners to rent instead of purchase a home. According to the Public Policy Institute of California (PPIC), homeownership rates in California have fallen and our rates are significantly lower than the rest of the nation. Over the past decade, homeownership rates have declined to 53.6 percent of occupied units. As owner-occupied units in California have fallen by about 133,500, the amount of rented units has increased by more than 877,000.

Housing, among many issues, is a determining factor for people to decide if they will stay in California or not. Currently, 30 percent of homeowners and 46 percent of renters spend more than 35 percent of their total income on housing. By helping renters save money to make a down payment or to help pay for closing costs, we can make the idea of owning a home in California more tangible.”

Committee amendments: Unlike other homeownership programs the state administers, like the programs operated by CalHFA, the funding for this program would come from a reduction in state revenues and would be a one-time investment in one individual rather than function as a revolving loan fund. The committee may wish to consider if this is the right investment considering the affordable housing challenges facing the state. The committee may wish to consider whether an individual who would benefit from a HSA would already purchase a home without this program. The committee may wish to consider whether there should be some income limitation on those who can qualify for a HSA to focus this bill on lower income individuals.

• Only allow taxpayers that make up to 80% of AMI qualify to create a HSA. If a taxpayer's income exceeds 80% AMI in any given year they cannot contribute to the HSA.
• Change the definition of "first time homebuyers" from taxpayers that have not owned a home within the last three years to a taxpayer who has never owned a home.
• The bill would allow both an individual and their spouse to set up a HSA for the purchase of the same home. The committee may wish to clarify that a couple is only eligible to set up one HSA.
• The definition of "qualified homeownership savings expenses" is overly broad and could include expenses for repairs, renovations, the purchase of new appliances and soft goods, and moving expenses in addition to potentially on-going mortgage payments. The committee may wish to clarify that "qualified homeownership savings expenses" is limited to down payment and closing costs.
• The bill does not specify that a HSA must be closed once a purchase is made. The committee may wish to consider an amendment to clarify that once a home is purchased it must be closed.

Prior legislation:

AB 1979 (Bonta) (2018) would create an individual HSA that would include income tax benefits similar to an IRA. This bill failed passage in the Assembly Appropriations Committee.

AB 53 (Steinorth) (2017) would have created an individual HSA that would have included income tax benefits similar to an IRA.

AB 1736 (Steinorth) (2016) would have created an individual HSA that would have included income tax benefits similar to an IRA. This bill failed passage in the Assembly Appropriations Committee.

Double Referred: This bill was also referred to the Assembly Committee on Revenue and Taxation where it will be heard should it pass out of this committee.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of realtors

California Building Industry Association

California Council for Affordable Housing

California Credit Union League

Habitat for Humanity California

Southwest California Legislative Council

Opposition

None on file

Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085