HB27 Alabama 2026 Session

Summary

Primary Sponsor

Chip BrownRepresentative

Republican

Session

2026 Regular Session

Title

Relating to Catastrophe Savings Accounts; expands allowable expenses

Summary

HB27 expands and tightens Alabama's Catastrophe Savings Accounts by broadening eligible expenses, setting contribution caps, and detailing tax treatment for contributions and withdrawals.

What This Bill Does

The bill defines Catastrophe Savings Accounts and Qualified Catastrophe Expenses, which now include deductible amounts for a taxpayer's primary residence, costs for a Fortified endorsement, and mitigation actions like reroofing and evaluation services. It imposes specific contribution caps based on the taxpayer's deductible amount or self-insurance status, and requires the account to be labeled a catastrophe savings account with only one such account per taxpayer. It changes how contributions and distributions are taxed, allowing a deduction for contributions, tax-exempt interest, and income treatment for distributions (with a 2.5% extra tax on taxable distributions unless certain exemptions apply), and it sets rules for deaths, surviving spouses, and when the extra tax does not apply. The changes take effect for tax years beginning in 2027, with the act becoming effective October 1, 2026.

Who It Affects

• Residential property owners in Alabama who pay state income tax and may open a catastrophe savings account to cover insurance deductibles and uninsured losses from hurricanes, rising floodwaters, or other catastrophic windstorm events.
• Self-insured homeowners (those opting not to obtain standard home insurance) and beneficiaries such as surviving spouses or estates who interact with contribution limits, distributions, and related tax consequences.

Key Provisions

• Defines Catastrophe Savings Account and Qualified Catastrophe Expenses, including insurance deductibles for the primary residence, Fortified endorsements, and mitigation actions (e.g., reroofing, evaluation services) to qualify for Fortified designation.
• Sets contribution caps: if deductible $1,000, up to the lesser of $15,000 or twice the deductible plus up to $15,000 for other Qualified Catastrophe Expenses; self-insured cases allow up to $250,000 but not exceeding the property's value.
• Requires labeling the account as a catastrophe savings account and limits to one account per taxpayer with the purpose to cover deductible and uninsured losses from specified disasters.
• Provides tax treatment: contributions are deductible against Alabama income tax, interest earned is tax-exempt, and distributions are generally includable in income unless used for Qualified Catastrophe Expenses; a 2.5% additional tax applies to taxable distributions with certain exceptions.
• Outlines exceptions and special rules: no additional tax if the taxpayer no longer owns a qualifying residence, or if distributions are from certain accounts and occur after age 70; non-taxable distributions prohibit further contributions; death and surviving spouse provisions shift income recognition to the recipient unless the surviving spouse is the beneficiary.
• Effective and timing: applies to tax years beginning on or after January 1, 2027; the act becomes effective October 1, 2026.

AI-generated summary using openai/gpt-5-nano on Feb 17, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Taxation & Revenue