Natural disasters: catastrophe savings accounts: personal income tax.

Plain English Breakdown

The exact date of the bill's implementation and final executive action are not specified in the provided official source material.

Natural Disasters: Catastrophe Savings Accounts

AB-232 allows homeowners to establish catastrophe savings accounts for disaster-related expenses and provides tax benefits for contributions made to these accounts until December 1, 2030.

What This Bill Does

• Allows homeowners to set up one catastrophe savings account until January 1, 2030.
• Requires distributions from the account to be used only for qualified catastrophe expenses like insurance deductibles or uninsured losses due to wildfires, floods, or earthquakes declared as emergencies by the Governor.
• Imposes penalties on homeowners who use funds for non-qualified expenses unless certain exceptions apply.
• Allows a tax deduction for contributions made to these accounts from January 1, 2026, until December 31, 2030.
• Excludes interest earned by the catastrophe savings account from gross income for tax purposes until December 1, 2030.

Who It Names or Affects

• Homeowners who want to prepare financially for natural disasters like wildfires, floods, or earthquakes.
• Financial institutions that will manage these special savings accounts.
• Taxpayers contributing to and using funds from a catastrophe savings account.

Terms To Know

Qualified Catastrophe Expenses

Expenses related to damage or loss of a primary residence due to wildfires, floods, or earthquakes declared as emergencies by the Governor.

Catastrophe Savings Account

A special savings account set up for disaster-related expenses like insurance deductibles and uninsured losses.

Limits and Unknowns

• The tax benefits and exclusions apply only until December 1, 2030.
• Penalties are imposed if funds from the catastrophe savings account are used for non-qualified expenses.
• This bill has passed both chambers of the legislature but its final implementation depends on further executive action.

Official Summary Text

AB 232, as amended, Calderon.
Natural disasters: catastrophe savings accounts: personal income tax.
Existing law provides for the formation and regulation of state-organized banks and state-certified credit unions by the Department of Financial Protection and Innovation.
This bill, until January 1, 2030, would authorize a homeowner to establish one catastrophe savings account that, among other things, has the specified purpose of covering the amount of insurance deductibles and other uninsured portions of risks of loss from wildfire, flood, or earthquake. The bill would require distributions from a catastrophe savings account to be used to cover qualified catastrophe expenses, defined as expenses paid or incurred due to damage to or loss of a homeowner’s primary residence caused by a wildfire, flood, or earthquake that has been declared by the Governor to be an emergency. The bill would impose penalties on homeowners who use a distribution to
cover an expense other than a qualified catastrophe expense, unless specified exceptions apply. The bill would require the penalty to be determined and collected by the Commissioner of Financial Protection and Innovation, and deposited in the Financial Protection Fund.
The Personal Income Tax Law, in modified conformity with federal income tax laws, allows various deductions from gross income in calculating adjusted gross income.
This bill, for taxable years beginning on or after January 1,
2025,
2026,
and before January 1,
2030,
2031,
would allow a deduction from adjusted gross income for amounts contributed by
an individual homeowner
a qualified taxpayer, as defined,
to a catastrophe savings account, in accordance with specified provisions.
The bill would define “catastrophe savings account” to mean a regular savings account or money market account with a financial institution that, among other requirements, is established to pay for the qualified catastrophe expenses, as defined, of a qualified taxpayer establishing the account, as provided. The bill would subject a qualified taxpayer to a specified penalty if they use a distribution from a catastrophe savings account to cover an expense other than a qualified catastrophe expense.
The Personal Income Tax Law, in conformity with federal income tax law, generally defines “gross income” as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income.
This bill, for taxable years beginning on or after January 1,
2025,
2026,
and before January 1,
2030,
2031,
would provide an exclusion from gross income for interest
income
earned by a catastrophe savings
account.
account until December 1, 2030.
Existing law requires any bill authorizing a new tax expenditure, as defined, to include tax credits, deductions, exclusions, or exemptions, to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements.
This bill would include findings and reporting requirements in compliance with this requirement.
This bill
would take effect immediately as a tax levy.

Current Bill Text

Download Bill PDF