HB106 Alabama 2025 Session

Summary

Primary Sponsor

Chip BrownRepresentative

Republican

Session

2025 Regular Session

Title

Relating to Catastrophe Savings Accounts; expands allowable expenses

Summary

HB106 expands what catastrophe savings accounts can pay for and tightens contribution limits, with new tax rules and distribution penalties.

What This Bill Does

It broadens qualified expenses to include deductibles for certain windstorm-related losses, self-insured losses, and mitigation costs such as Fortified-related upgrades. It sets specific caps on how much a taxpayer can contribute to a catastrophe savings account based on deductible level and other expenses, with additional rules for self-insured homeowners. It establishes tax benefits for contributions (state income tax deduction and tax-exempt interest), protections from attachment, and detailed distribution rules that tax or exempt withdrawals and impose a 2.5% extra tax in some cases, plus death/survivor and excess-contribution provisions.

Who It Affects

• Residential property owners in Alabama who open a catastrophe savings account to cover insurance deductibles and uninsured losses (and any related mitigation costs). They would receive a state income tax deduction for contributions, tax-exempt interest on the CSA, and protection from seizure of the account.
• Taxpayers who contribute to a catastrophe savings account and their estates or beneficiaries, who face rules on how distributions are taxed, the $2,000–$250,000 contribution caps (depending on circumstances), and special rules at death or when the residence is no longer qualifying.

Key Provisions

• Defines a catastrophe savings account (CSA) and qualified catastrophe expenses as including (a) insurance deductibles for hurricane, rising floodwaters, or other catastrophic windstorm damage; (b) costs of a Fortified endorsement; and (c) mitigation actions to reduce risk (such as reroofing and Fortified- qualification evaluations).
• Sets contribution caps: (1) deductible ≤ $1,000: up to $2,000 plus amounts for other qualified expenses, not to exceed $15,000; (2) deductible > $1,000: up to the lesser of $15,000 or twice the deductible plus other qualified expenses, not to exceed $15,000; (3) self-insured with no insurance: up to $250,000 but not exceeding the home’s value. One CSA per taxpayer is allowed.
• Provides tax benefits and protections: contributions are deductible against Alabama income tax, CSA interest is tax-exempt, and CSA funds are not subject to attachment or levy.
• Outlines distribution tax rules: distributions are taxed as income unless used for qualified catastrophe expenses; excess distributions are included in income, and there is a 2.5% additional tax on includable income (with exceptions for certain life events and beneficiary situations).
• Death and inheritance rules: if the CSA owner dies, the account is included in the recipient’s income unless the recipient is the surviving spouse; after the surviving spouse dies, it is included in the recipient’s income; the extra 2.5% tax does not apply to distributions on death.
• Penalties for excess contributions: any excess must be withdrawn and included in Alabama income in the year of withdrawal.
• Effective dates: the act applies to tax years beginning on or after January 1, 2026, with an effective date of October 1, 2025.

AI-generated summary using openai/gpt-5-nano on Feb 22, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Taxation & Revenue