HB515 Alabama 2015 Session

Summary

Primary Sponsor

Randy Davis

Republican

Session

Regular Session 2015

Title

Taxation, tax deduction for taxpayers who made contributions to a catastrophe savings account, increase in state tax deduction, technical corrections to remove ambiguities, Homeowner's Insurance Catastrophic Event Planning Act, Secs. 40-18-311, 40-18-312 am'd.

Summary

HB515 creates the Homeowner's Insurance Catastrophic Event Planning Act, expanding and clarifying Alabama's tax rules for catastrophe savings accounts and adding rules for contributions, withdrawals, and distributions.

What This Bill Does

The bill creates a new act and amends existing law to change how catastrophe savings accounts are treated for state taxes. It doubles the deduction amount to twice the contributed amount and makes the interest earned on the account tax-exempt, with the account protected from garnishment. It sets annual contribution limits based on the taxpayer’s deductible and adds a self-insured option with a cap tied to home value. It also lays out how distributions are taxed, requires excess contributions to be withdrawn and included in income, and adds a 2.5% extra tax on certain taxable distributions with specified exemptions, plus rules for death and transfer of accounts.

Who It Affects

• Individual Alabama taxpayers who contribute to catastrophe savings accounts; they would receive a deduction equal to twice their contribution, enjoy tax-exempt interest, and must withdraw any excess contributions if limits are exceeded.
• Homeowners who choose not to obtain homeowner's insurance (self-insured); their contribution limit is capped at the lesser of $250,000 or the value of their legal residence.

Key Provisions

• Creates the Homeowner's Insurance Catastrophic Event Planning Act and amends sections 40-18-311 and 40-18-312.
• Deduction: a deduction against state income tax equal to two times the catastrophe savings account contribution, with all interest income exempt from state tax.
• Protection: catastrophe savings accounts are exempt from attachment, levy, garnishment, or other legal process in Alabama.
• Contribution limits: (1) deductible ≤ $1,000: up to $4,000 per tax year and $12,000 total; (2) deductible > $1,000: up to the lesser of $15,000 or 2× the taxpayer’s deductible; (3) self-insured: up to $250,000 or the value of the residence.
• Excess contributions: any amount over the limit must be withdrawn and included in Alabama income in the year of withdrawal.
• Distributions: distributions are included in income unless used for qualified catastrophe expenses; if expenses exceed distributions, the excess distributions do not count as income.
• Additional tax: the taxable distribution increases state tax by 2.5% of the includable amount, with exceptions (no longer owning a qualifying residence or certain distributions from accounts meeting (3) and age 70).
• Death and transfer: upon death, the account is included in the recipient’s income (unless the recipient is the surviving spouse); the additional 2.5% tax does not apply to distributions on death.

AI-generated summary using openai/gpt-5-nano on Feb 25, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Taxation