BILL ANALYSIS Ó
AB 1736
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Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
1736 (Steinorth) - As Amended May 12, 2016
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|Policy |Housing and Community |Vote:|7 - 0 |
|Committee: |Development | | |
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| |Revenue and Taxation | |9 - 0 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill creates a homeownership savings account (HSA) and
allows a deduction for contributions made by qualified
individuals to the HSA. Specifically, this bill:
AB 1736
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1)Allows a deduction equal to the amount contributed in the HSA
by a qualified taxpayer in any taxable year commencing on or
after January 1, 2017 and before January 1, 2019, not to
exceed:
a) $20,000 for qualified taxpayers who are married filing a
joint return, a head of household and surviving spouses, as
defined.
b) $10,000 for qualified taxpayers filing a return other
than those specified.
2)Allows the deduction only if a budget measure specifically
appropriates moneys to the Franchise Tax Board (FTB) to
administer the HSA deduction.
3)Excludes income withdrawn from the HSA from gross income of
the taxpayer if those funds are used to pay for homeownership
savings expenses.
4)Specifies that a HSA is subject to the same requirements and
limitations as an Individual Retirement Account (IRA), except
as otherwise noted, and that it must be established by a
qualified taxpayer whose gross income is less than or equal to
80 percent of the area median income and must pay for
homeownership savings expenses.
5)87Defines a "qualified taxpayer" as any individual, or
individual's spouse, who has never had an ownership interest
in a principal residence subject to the contribution allowed
by this section.
AB 1736
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FISCAL EFFECT:
General Fund cost pressures of approximately $90 million in FY
2017-18 and $110 million in FY 2018-19.
COMMENTS:
1)Purpose. According to the author, AB 1736 will help first-time
homebuyers save more for their first home. This bill is
intended to make the benefits of homeownership more attainable
for families across California.
2)Background on tax-advantaged savings accounts and retirement
plans. Congress has authorized several kinds of retirement
savings plans that qualified for reduced or deferred income
taxes to encourage workers to save for retirement. A qualified
retirement plan, such as a 401(k) plan or an IRA, allows a
worker to save for retirement by investing a portion of his or
her wages while deferring current income taxes on the original
investment and earnings until money is withdrawn.
3)Existing homeownership benefits. Both federal and state laws
already authorize penalty-free withdrawals of a limited amount
of IRA funds for first-time homebuyers. In the case of a
traditional IRA, the maximum amount of IRA funds that may be
withdrawn without the penalty is $10,000. On top of these
existing IRA benefits, the federal and state tax codes provide
significant incentives for homeownership. For example,
California spends approximately $4.2 billion on the home
mortgage interest deduction.
4)Double Benefit. This bill allows taxpayers to make
AB 1736
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tax-deductible contributions to, and receive tax-free
withdrawals from, an HSA as long as the funds are used for
qualified expenses. In contrast, a traditional IRA allows
tax-deductible contributions, but imposes a tax on
distributions. And while qualified distributions from Roth
IRAs are tax-free, contributions to these accounts are
taxable.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081