SB227 Summary

• Establishes catastrophe savings accounts for Alabama residents to cover insurance deductibles and uninsured losses from windstorms, hurricanes, tornadoes, hail, and similar perils affecting their primary residence.

• Allows taxpayers to deduct contributions to catastrophe savings accounts from state income tax and exempts all interest income earned in the account from taxation.

• Sets contribution limits based on insurance deductible amounts: $2,000 for deductibles ≤$1,000; up to $15,000 or twice the deductible for deductibles >$1,000; and up to $250,000 for uninsured individuals (not exceeding home value).

• Distributions used for qualified catastrophe expenses are not included in taxable income; non-qualified distributions are taxable and subject to an additional 2.5% penalty tax unless the taxpayer no longer owns the residence or is over age 70 for self-insured accounts.

• Accounts are protected from attachment, levy, garnishment, and legal process; upon the account owner's death, the surviving spouse may inherit the account tax-free, but other beneficiaries must include it in their income.