Modifying first-time homebuyers savings accounts, and including retroactive applicability provisions

Currently, individuals may open an interest-bearing savings account and designate the account as a first-time homebuyer savings account (account) for the purpose of financing the purchase of a single-family residence in this state by a first-time homebuyer. The account may be established individually, or jointly with a spouse if the married couple files a joint Iowa income tax return. The contributions to the account are deductible from the individual income tax. Currently, contributions are deductible in the amount of $4,744 for married persons, and $2,372 for individuals, and any interest in the account accrues state tax free. This bill modifies the account by allowing an employer (employer account holder) to open an account on behalf of an employee and make contributions to the account on behalf of an employee who is a first-time homebuyer. The bill specifies the amount of funds withdrawn from the account that are contributed by the employer account holder that are used by an individual taxpayer to purchase a home as a first-time homebuyer are deductible against the individual income tax by the individual taxpayer. Unlike individual account holders, the bill prohibits an employer account holder from taking a deduction against income taxes for any contributions made to the account. In the same manner as individual account holders, the bill assesses a penalty against an employer account holder in the amount of percent of any withdrawal amount if the amount is withdrawn for a purpose other than for a purchase by a first-time homebuyer. The penalty is not assessed upon death of the first-time homebuyer, change of employment status with the first-time homebuyer and the employer account holder, or upon withdrawals made pursuant to a garnishment, levy, or bankruptcy. The bill and current law require the account to be closed after a period of years, and the account is subject to penalties and tax if the moneys in the account are not used in the purchase of a home by a first-time homebuyer within the 10-year period. The bill applies retroactively to tax years beginning on or after January 1, 2026.