SB73 Alabama 2025 Session

Summary

Primary Sponsor

David SessionsSenator

Republican

Session

2025 Regular Session

Title

Relating to Catastrophe Savings Accounts; expands allowable expenses

Summary

SB73 would expand catastrophe savings accounts to cover more expenses, cap contributions, and change tax rules for these accounts.

What This Bill Does

It expands eligible expenses to include Qualified Catastrophe Expenses like Fortified endorsements and mitigation actions (e.g., reroofing) that reduce windstorm or flood risk. It sets contribution caps based on the taxpayer’s deductible and whether the homeowner is self-insured, with limits up to $15,000 in many cases and up to $250,000 for self-insured homeowners (not exceeding the home's value). It changes the tax treatment of contributions and distributions, including a deductible contribution, tax-exempt interest, and income implications for distributions, plus a 2.5% additional tax on taxable distributions with certain exceptions; it also outlines rules on death and inheritance of the account. The act would take effect October 1, 2025.

Who It Affects

• State income taxpayers who own residential property in Alabama and may establish a catastrophe savings account to cover windstorm-related costs.
• Homeowners with hurricane, flood, or other windstorm risk who may use the account for deductibles, uninsured losses, Fortified-related costs, and mitigation expenditures.
• Self-insured homeowners who choose not to obtain traditional insurance, subject to the $250,000 contribution cap (not exceeding the home's value).
• Tax filers who participate in catastrophe savings accounts and their survivors/heirs under the rules for distributions and estate transfers.

Key Provisions

• Defines catastrophe savings accounts and Qualified Catastrophe Expenses, including insurance deductibles, Fortified endorsements, and mitigation costs.
• Allows a state income tax deduction for contributions to these accounts and exempts the account’s interest from state taxes; accounts cannot be attached.
• Sets contribution caps: (1) deductible ≤ $1,000 → up to $2,000 plus other expenses up to $15,000; (2) deductible > $1,000 → up to $15,000 or twice the deductible plus other expenses up to $15,000; (3) self-insured not insured → up to $250,000 or the home's value, whichever is lower.
• If contributions exceed caps, excess must be withdrawn and included in Alabama income in the withdrawal year.
• Distributions are taxable unless used for Qualified Catastrophe Expenses; if expenses meet or exceed distributions, no income is taxed; excess distributions reduce taxable income accordingly.
• An additional 2.5% tax applies to taxable distributions unless specific exceptions apply (e.g., no longer owning an eligible residence, or certain account types after reaching age 70).
• Death rules: the account becomes part of the recipient’s income unless the recipient is the surviving spouse; after the surviving spouse’s death, it may be included in the beneficiary’s income; the 2.5% additional tax does not apply to distributions on death.
• Effective date: 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