SB3497 103RD GENERAL ASSEMBLY

LRB103 38134 RTM 68266 b

103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
SB3497

Introduced 2/9/2024, by Sen. Cristina Castro

SYNOPSIS AS INTRODUCED:

New Act

Creates the Illinois Home Buyer Savings Accounts Act. Provides that a first-time and second-chance home buyer may open an account with a financial institution designated in its entirety by the financial institution as a first-time and second-chance home buyer savings account. Provides that the funds in a first-time and second-chance home buyer savings account may be used only to pay a first-time and second-chance home buyer's eligible costs for the purchase of a single-family residence in Illinois. Provides that 2 first-time and second-chance home buyers may jointly own a first-time and second-chance home buyer savings account. Provides that only cash and marketable securities may be contributed to a first-time and second-chance home buyer savings account. Sets forth provisions concerning the responsibilities of an account holder; the responsibilities of financial institutions; deduction of contributions, exclusion of earnings, and limitations; the penalty for withdrawal for purpose other than eligible costs; and the forms the Department of Revenue must adopt.

A BILL FOR

AN ACT concerning regulation.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Illinois Home Buyer Savings Accounts Act.

Section 5. Findings and purpose.

(a) The General Assembly finds that:

(1) The American Dream has always been closely associated with owning your own home.

(2) It is becoming more and more difficult to achieve the goal of homeownership in Illinois and throughout the country.

(3) Homeownership provides more than a dream to an individual person or family. An increase in homeownership rates in Illinois has a direct positive impact on the quality of our communities, our schools, our economy, and public safety.

(b) The purpose of this Act is to:

(1) Make it easier for those in Illinois to achieve their goal of homeownership for the first time.

(2) Provide a tax incentivized savings account for qualified first-time and certain second-chance home buyers, which, in turn, can be used toward a down payment or certain eligible closing costs for the purchase of a home in Illinois.

Section 10. Definitions. As used in this Act:

"Account holder" means a first-time and second-chance home buyer who establishes, individually or jointly with another first-time and second-chance home buyer, a first-time and second-chance home buyer savings account.

"Allowable closing costs" means a disbursement listed on a settlement statement for the purchase of a single-family residence in Illinois by a first-time and second-chance home buyer.

"Department" means the Department of Revenue.

"Eligible costs" means the down payment and allowable closing costs for the purchase of a single-family residence in Illinois by a first-time and second-chance home buyer. "Eligible costs" does not include any costs incurred prior to the establishment of a first-time and second-chance home buyer savings account.

"Financial institution" means any bank, savings institution, industrial loan association, credit union, or other similar entity authorized to do business and accept deposits in Illinois.

"First-time and second-chance home buyer" means an individual who resides in Illinois and has not owned or purchased, either individually or jointly, a single-family residence during a period of 10 years prior to the date of the purchase of a single-family residence.

"First-time and second-chance home buyer savings account or account" means an account with a financial institution created for the purpose of payment or reimbursement of eligible costs for the purchase of a single-family residence in Illinois by a first-time and second-chance home buyer and designated by the financial institution upon its creation as a first-time and second-chance home buyer savings account.

"Settlement statement" means the statement of receipts and disbursements for a transaction related to real estate, including a statement prescribed under the federal Real Estate Settlement Procedures Act of 1974 and regulations under that Act.

"Single-family residence" means a single-family residence owned and occupied by a first-time and second-chance home buyer as the first-time and second-chance home buyer's principal residence. "Single-family residence" includes, but is not limited to, a manufactured home, a trailer, a mobile home, a condominium unit, or a cooperative.

Section 15. Establishment of a first-time and second-chance home buyer savings account. After the effective date of this Act, a first-time and second-chance home buyer may open an account with a financial institution designated in its entirety by the financial institution as a first-time and second-chance home buyer savings account.

Section 20. Use of a first-time and second-chance home buyer savings account.

(a) Funds from a first-time and second-chance home buyer savings account may be used only to pay a first-time and second-chance home buyer's eligible costs for the purchase of a single-family residence in Illinois.

(b) A first-time and second-chance home buyer may jointly own a first-time and second-chance home buyer savings account with another first-time and second-chance home buyer if the joint account holders file a joint income tax return.

(c) Only cash and marketable securities may be contributed to a first-time and second-chance home buyer savings account. Subject to the limitations described in Section 35, persons other than the account holder may contribute funds to a first-time and second-chance home buyer savings account. There is no limitation on the amount of contributions that may be made to or retained in a first-time and second-chance home buyer savings account.

Section 25. Account holder responsibilities.

(a) The account holder shall do all the following:

(1) not use funds held in a first-time and second-chance home buyer savings account to pay expenses of administering the account, except that a service or other account fee may be deducted from the account by the financial institution in which the account is held;

(2) submit the following to the Department with the account holder's Illinois income tax return:

(A) detailed information, in a form prescribed by the Department, regarding the first-time and second-chance home buyer savings account, including a list of transactions for the account during the tax year; and

(B) the Form 1099 issued by the financial institution for the account;

(3) submit to the Department, upon a withdrawal of funds from a first-time and second-chance home buyer savings account, a detailed account of the eligible costs toward which the account funds were applied and a statement of the amount of funds remaining in the account, if any. If upon withdrawal of funds from the first-time and second-chance home buyer savings account, the account holder fails to provide the Department with the detailed account of the eligible costs towards which the account funds were applied, then the entire account's funds, including the interest and other income on principal, shall be subject to the penalties described in Section 40.

(b) Failure to submit the documentation required under subsection (a) on an annual basis with the filing of the Illinois income tax return shall result in the automatic denial of the deduction and exclusion.

Section 30. Responsibilities of financial institutions.

(a) A financial institution shall be required to:

(1) create a new account for the first-time and second-chance home buyer and designate the account as a "first-time and second-chance home buyer's savings account" on records and transactional statements related to the account; and

(2) provide the account holder with a detailed account statement relating to the first-time and second-chance home buyer's savings account on a yearly basis.

(b) A financial institution is not required to:

(1) track the use of money withdrawn from a first-time and second-chance home buyer savings account;

(2) allocate funds in a first-time and second-chance home buyer savings account between joint account holders; and

(3) report any information not otherwise required by law to the Department or any other governmental agency.

(c) A financial institution is not responsible or liable for:

(1) determining or ensuring that an account satisfies the requirements to be a first-time and second-chance home buyer savings account;

(2) determining or ensuring that funds in a first-time and second-chance home buyer savings account are used for eligible costs; or

(3) reporting or remitting taxes or penalties related to the use of a first-time and second-chance home buyer savings account.

(d) Upon being furnished proof of the death of the account holder and any other information related to the death required by the financial institution or contract governing the first-time and second-chance home buyer savings account, a financial institution shall distribute the principal and accumulated interest or other income in the account in accordance with the terms of the contract governing the account or as otherwise required by law.

Section 35. Deduction of contributions, exclusion of earnings, and limitations.

(a) Except as otherwise provided in this Act and subject to the limitations under this section, a first-time and second-chance home buyer savings account holder shall be entitled to a state tax deduction, subject to the limitations of this Section, not to exceed $5,000 for an account holder who files an individual tax return or $10,000 for joint account holders who file a joint tax return, for contributions made by the account holder to a first-time and second-chance home buyer savings account during the tax year in which the deduction is claimed.

(b) Except as otherwise provided in this Act and subject to the limitations under this Section, earnings from the first-time and second-chance home buyer savings account, including interest and other income on the principal, shall be excluded from taxable income of an account holder for Illinois income tax purposes during the tax year.

(c) An account holder may claim the deduction and exclusion under this Section as follows:

(1) for a period not to exceed 10 years;

(2) for an aggregate total amount of principal and earnings not to exceed $25,000 for individual accounts and $50,000 for joint accounts during the 10-year period;

(3) only if the principal and earnings of the account remain in the account until a withdrawal is made for eligible costs related to the purchase of a single-family residence by a first-time and second-chance home buyer.

(d) A person other than the account holder who deposits funds in a first-time and second-chance home buyer savings account shall not be entitled to the deduction and exclusion provided under this Act.

(e) The deduction and exclusion from taxable income provided by this Act shall apply to any alternative basis for calculating taxable income for Illinois income tax purposes.

(f) The funds in the first-time and second-chance home buyer savings account shall not be used to purchase a single-family residence outside of this State.

Section 40. Penalty for withdrawal for purpose other than eligible costs. Except as otherwise provided in this Section, if the account holder withdraws any funds from a first-time and second-chance home buyer savings account for a purpose other than eligible costs for the purchase of a single-family residence in this State, all of the following shall apply:

(1) The entire balance of the fund, including interest and other income on principal, shall be included in the account holder's taxable income for the tax year in which the withdrawal was made.

(2) The account holder shall pay a penalty to the Department equal to 10% of the amount withdrawn. The penalty shall not apply to funds withdrawn from an account which were:

(A) withdrawn by reason of the account holder's death or disability or due to unemployment after the account holder has exhausted his or her applicable unemployment compensation benefits; or

(B) a disbursement of assets of the account pursuant to a filing for protection under the United States Bankruptcy Code.

(c) Subsections (a) and (b) do not apply to funds withdrawn or distributed from a first-time and second-chance home buyer savings account that within 60 days of their withdrawal or distribution are deposited in full into another first-time and second-chance home buyer savings account. This subdivision shall apply both to transfers between any qualifying first-time and second-chance home buyer savings accounts whether such transfers are to or from qualifying individual or joint accounts.

Section 45. Department of revenue; forms. The Department shall adopt forms for the following:

(a) The designation of an account with a financial institution to serve as a first-time and second-chance home buyer savings account.

(b) An account holder to annually submit to the Department detailed information regarding the first-time and second-chance home buyer savings account, including, but not limited to, a list of transactions for the account during the tax year and identifying any supporting documentation required to be maintained by the account holder.

Section 50. Annual report. The Department shall submit an annual report to the General Assembly no later than March 31 of each calendar year with the first annual report due no later than March 31, 2025, in which the Department shall include the total annual number of deductions claimed and total amount of deposits deducted pursuant to this Act, the number of taxpayers who submitted an account to the Department pursuant to paragraph (3) of subsection (a)(3) of Section 25, and the number of taxpayers who were subjected to the penalty provisions of Section 40.