Relating to Catastrophe Savings Accounts; expands allowable expenses
Summary
HB106 revises Alabama’s catastrophe savings account law, which lets certain homeowners set aside money in a special account for storm-related housing costs and receive state income tax benefits. The bill expands the definition of permissible uses for these accounts to include not only insurance deductibles and self-insured losses from hurricanes, rising floodwaters, and other catastrophic windstorm events, but also the annual cost of a FORTIFIED endorsement and mitigation expenses intended to reduce storm damage risk, such as reroofing and evaluation services needed to qualify for a FORTIFIED designation.
The bill also adjusts contribution limits and distribution rules. It increases the amount that may be contributed depending on the size of the taxpayer’s deductible, allows up to $250,000 for self-insured homeowners subject to the value of the residence, and continues to require excess contributions to be withdrawn and taxed. Distributions remain tax-free when used for qualified catastrophe expenses, but taxable withdrawals may be subject to an additional 2.5 percent tax unless the taxpayer no longer owns the residence or is age 70 or older and the account meets the self-insured account rules. The bill applies to tax years beginning on or after January 1, 2026, and becomes effective October 1, 2025.
Impact
HB106 amends Sections 40-18-310, 40-18-311, and 40-18-312 of the Code of Alabama 1975, expanding the state income tax treatment of catastrophe savings accounts and broadening the types of storm-hardening and recovery expenses that qualify. It affects individual taxpayers who own qualifying residential property in Alabama, especially homeowners in hurricane- and windstorm-prone areas, by allowing tax-favored savings for deductibles, mitigation, and FORTIFIED-related costs while preserving existing protections from attachment, levy, and garnishment.
Sentiment
The bill appears to have been received positively overall. It passed the Alabama House overwhelmingly with no recorded opposition, including unanimous or near-unanimous votes on the relevant motions and third reading. The lack of recorded debate or committee transcript suggests limited visible controversy and broad support for encouraging homeowner preparedness and resilience against catastrophic weather events.
Contention
The main policy issues embedded in the bill are the expanded tax-preferred uses of the accounts and the higher contribution caps, which could be viewed as a tax expenditure benefiting homeowners with sufficient income to save in these accounts. Potential points of contention include the increased state revenue impact from the income tax deduction and interest exemption, the special treatment for self-insured homeowners, and the age-70 exception that allows certain distributions without the additional tax. However, no specific objections or opposing arguments appear in the available voting history or transcripts.
Relating to funding of excess losses and operating expenses of the Texas Windstorm Insurance Association; authorizing an assessment; authorizing a surcharge.