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SB2552
THE SENATE
S.B. NO.
2552
THIRTY-THIRD LEGISLATURE, 2026
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:
����
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.
����
The
legislature further finds that 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 increase the maximum annual deduction for
contributions into, and maximum account levels for, individual housing
accounts, to reflect current housing prices more accurately.
����
SECTION
2
.
�
Section 235-5.5, Hawaii Revised Statutes, is
amended as follows:
����
1.
�
By amending subsections (a) and (b) to read:
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"(a)
�
There shall be allowed as a deduction from
gross income the amount, not to exceed [
$5,000,
]
$ ,
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
]
$
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.
����
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,
]
$ ,
or [
$10,000
]
$
for a
joint return, for amounts paid in cash, excluding interest paid or accrued
thereon.
����
The
amounts paid in cash allowable as a deduction under this section to an
individual for all taxable years shall not exceed [
$25,000,
]
$ ,
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,
]
$ ,
excluding interest paid or accrued thereon.
����
(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:
����
(1)
�
Contributions shall not be accepted for the
taxable year in excess of [
$5,000
]
$
(or [
$10,000
]
$
in the case of a joint return) or in excess of [
$25,000
]
$
for all taxable years, exclusive of interest paid or accrued;
����
(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
]
the
State or any
federal agency established for the purpose of insuring accounts in these
financial institutions.
�
The financial
institution [
must
]
shall
actively make residential real estate
mortgage loans in Hawaii;
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(3)
�
The assets of the trust shall be invested only
in fully insured savings or time deposits.
�
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;
����
(4)
�
The entire interest of an individual or
married couple for whose benefit the trust is maintained shall be distributed
to the individual or
married
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)
�
Except as provided in subsection (g), the
trustee shall not distribute the funds in the account unless the trustee:
���������
(A)
�
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
���������
(B)
�
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.
�
The amount withheld shall be applied to the
liability of the taxpayer under subsections (c) and (e); and
����
(6)
�
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."
�����
2.
�
By amending subsections (f) and (g) to read:
����
"(f)
�
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[
:
����
(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
����
(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
]
subsection
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).
�
The election
shall be made before January 1, 1991.
�
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).
�
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.
����
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).
]
����
(g)
�
No tax liability shall be imposed under this
section if:
����
(1)
�
The payment or distribution is attributable to
the individual dying or becoming totally disabled; or
����
(2)
�
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:
����
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
].
����
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.
�
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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SECTION
3.
�
Statutory material to be repealed is
bracketed and stricken.
�
New statutory
material is underscored.
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SECTION 4.
�
This Act, upon its approval, shall apply to
taxable years beginning after December 31, 2026.
INTRODUCED BY:
_____________________________
Report Title:
Individual
Housing Accounts; Pre-tax Savings; Maximum Annual Deduction; Increase
Description:
For
taxable years beginning 1/1/2027, increases the maximum annual deduction for
contributions to, and maximum account levels for, individual housing accounts.
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.