RELATING TO THE INDIVIDUAL HOUSING ACCOUNT PROGRAM.

HB286

HOUSE OF REPRESENTATIVES

H.B. NO.

286

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

relating
to the individual housing account program
.

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

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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.

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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
update the Individual Housing Accounts statute by increasing the contribution
levels, and maximum account levels, to reflect current housing prices more
accurately.

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

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"
�235-5.5
�
Individual housing
accounts.
�
(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.

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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.

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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.

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(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:

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(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;

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(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
State or any federal agency established for the purpose of insuring accounts in
these financial institutions.
�
The
financial institution must actively make residential real estate mortgage loans
in Hawaii;

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(3)
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The assets of the
trust shall be invested only in fully insured savings or time deposits.
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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;

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(4)
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The entire
interest of an individual or married couple for whose benefit the trust is
maintained shall be distributed to the individual or couple not later than one
hundred twenty months after the date on which the first contribution is made to
the trust;

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(5)
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Except as provided
in subsection (g), the trustee shall not distribute the funds in the account
unless the trustee:

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(A)
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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

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(B)
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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.
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The amount withheld shall be
applied to the liability of the taxpayer under subsections (c) and (e); and

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(6)
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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.

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(c)
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Any contributions paid or distributed out of an individual housing
account shall be included in gross income by the individual for whose benefit
the account was established for the taxable year in which the payment or
distribution is received, unless the amount is used exclusively in connection
with the purchase of the first principal residence in Hawaii for the individual
for whose benefit the account was established.

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(d)
�

The transfer of an individual's interest in an individual housing
account to a spouse under a dissolution of marriage decree or under a written
instrument incident to a dissolution of marriage shall not be considered a
taxable transfer made by the individual, and the interest, at the time of the
transfer, shall be treated as part of an individual housing account of the
transferee, and not of the transferor.
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After the transfer, the account shall be treated, for purposes of this
section, as maintained for the benefit of the transferee.

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(e)
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If a distribution from an individual housing account to an individual
for whose benefit the account was established is made and not used in
connection with the purchase of the first principal residence in Hawaii for the
individual, the tax liability of the individual under this chapter for the
taxable year in which the distribution is received shall be increased by an
amount equal to ten per cent of the amount of the distribution which is
includable in the individual's gross income for the taxable year.

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If, during any taxable year, the
individual uses the account or any portion thereof as security for a loan, the
portion so used shall be treated as if it had been distributed to that
individual.

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(f)
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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[
:

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(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

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(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 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).
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The election
shall be made before January 1, 1991.
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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).
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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.

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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).
]

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(g)
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No tax liability shall be imposed under this section if:

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(1)
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The payment or
distribution is attributable to the individual dying or becoming totally
disabled; or

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(2)
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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:

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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
]
as
defined in �235-1
.

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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.
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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.

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(h)
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If the individual for whose benefit the individual housing account was
established subsequently marries a person who has or has had any interest in
residential property, the individual's housing account shall be terminated, the
funds therein shall be distributed to the individual, and the amount of the
funds shall be includable in the individual's gross income for the taxable year
in which such marriage took place; provided that the tax liability defined
under subsection (f) shall not be imposed.

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(i)
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The trustee of an individual housing account shall make reports
regarding the account to the director and to the individual for whom the
account is maintained with respect to contributions, distributions, and other
matters as the director may require under rules.
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The reports shall be filed at a time and in a
manner as may be required by rules adopted under chapter 91.
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A person who fails to file a required report
shall be subject to a penalty of $10 to be paid to the director for each
instance of failure to file."

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

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SECTION 4.
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This Act, upon its approval, shall apply to
taxable years beginning after December 31, 2025.

INTRODUCED BY:

_____________________________

Report Title:

Individual
Housing Account; Pre-tax Savings; Minority Caucus Package

Description:

Updates
the Individual Housing Account statute to reflect the current cost of housing
down-payments more accurately.

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