How did Kansas change first-time home buyer savings accounts and the related income tax modification?

Plain-English summary

Kansas Notice 23-05 explains changes made by 2023 House Bill 2197 to the First-Time Home Buyer Savings Account Act and to the related Kansas income tax modification. The changes are effective for tax year 2022 and all subsequent years. In general, the bill adds a procedure for distributing an account when the account holder dies, changes the term "transfer on death" to "payable on death," and updates the income tax modification to match.

Death of the account holder (Section 2, K.S.A. 58-4903(b)). Naming a designated beneficiary does not create a survivorship interest in the account. On the account holder's death, the balance is paid to the payable-on-death beneficiary in accordance with K.S.A. 9-1215, or -- if there is no named payable-on-death beneficiary -- under the Kansas probate code.

Recapture on death (Section 3, K.S.A. 58-4904(e)). This subsection addresses recapture, on the death of an account holder with no surviving beneficiary, of contributions or earnings that were claimed as a subtraction modification under K.S.A. 79-32,117(c)(xxviii). The amendment changes "transfer on death" to "payable on death" as it relates to a beneficiary.

Financial institutions (Section 4, K.S.A. 58-4906(c)). A financial institution may rely on its own account records to determine the payable-on-death beneficiary. If the payable-on-death beneficiary in the institution's records conflicts with the designated beneficiary on a form required by the Secretary, the institution's records control.

Income tax modification (Section 5, K.S.A. 79-32,117(b)(xviii)). This addition-modification recapture provision is amended to recognize the change from "transfer on death" to "payable on death." Broadly, if distributions from the account were not used for authorized expenses, or were not held for the minimum required time -- or if the account holder did not designate a surviving payable-on-death beneficiary -- the previously subtracted contributions and earnings are added back to income.

What this means for you

People with a first-time home buyer savings account

• Make sure you name a payable-on-death beneficiary; on your death the account balance passes to that beneficiary (under K.S.A. 9-1215), and if none is named, it goes through the Kansas probate code.
• If no surviving beneficiary is designated, the contributions and earnings you previously subtracted from Kansas income can be recaptured (added back).
• The changes apply for tax year 2022 and after.

Financial institutions

• You may rely on your own account records to identify the payable-on-death beneficiary, and those records control over a conflicting Department form.

Tax professionals

• The income tax subtraction (K.S.A. 79-32,117(c)(xxviii)) and the addition-modification recapture (K.S.A. 79-32,117(b)(xviii)) now use "payable on death" terminology; watch for recapture when an account is distributed on death without a surviving beneficiary.

Common questions

What is the main change? House Bill 2197 sets how a first-time home buyer savings account is distributed when the holder dies, renames "transfer on death" to "payable on death," and updates the related income tax modification.

Who gets the account when the holder dies? The payable-on-death beneficiary under K.S.A. 9-1215; if none is named, the balance passes under the Kansas probate code.

When is the subtraction recaptured? When distributions were not used for authorized expenses or not held long enough, or when the holder did not designate a surviving payable-on-death beneficiary.

When do the changes take effect? Tax year 2022 and all subsequent years.

Citations and references

• House Bill 2197 (2023) -- amended the First-Time Home Buyer Savings Account Act and the related income tax modification.
• K.S.A. 58-4903 -- designation of an account beneficiary and distribution on the holder's death.
• K.S.A. 58-4904 -- authorized uses and recapture on death with no surviving beneficiary.
• K.S.A. 58-4906 -- financial institution reliance on its account records for the payable-on-death beneficiary.
• K.S.A. 79-32,117 -- Kansas income tax addition and subtraction modifications tied to first-time home buyer savings accounts.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 23-05

Original ruling text

Policy and Research
109 SW 9th Street Phone: 785-368-8222
PO Box 3506 Fax: 785-296-1279
Topeka KS 66601-3506 www.ksrevenue.gov
Mark A. Burghart, Secretary Laura Kelly, Governor

                                        NOTICE 23-05

                      FIRST-TIME HOME BUYERS SAVINGS ACCOUNTS

                                       (JULY 17, 2023)

   During the 2023 Legislative Session House Bill 2197 was passed and signed into law. The

Bill amends the first-time home buyer savings account act to provide a procedure for distribution
of the account balance upon the death of an account holder, and to change the term "transfer on
death" to "payable on death". It also amends the Kansas income tax modification for certain
contributions to, or earnings from, a first-time home buyer savings account to recognize amended
language in the first-time home buyer savings account act.

  Section 2 of the Bill amends K.S.A. 2022 Supp. 58-4903(b) to add language regarding the

death of an account holder. The new provision, which is added to the subsection dealing with
designation of an account beneficiary, states:

         (2) The naming of a designated beneficiary shall not create a survivorship interest
   in the account for such designated beneficiary. In the event of the death of an account
   holder, the balance of such account shall be paid to the payable on death beneficiary
   in accordance with K.S.A. 9-1215, and amendments thereto, or, in the absence of a
   named payable on death beneficiary, in accordance with the provisions of the Kansas
   probate code.

   Section 3 of the Bill amends K.S.A. 2022 Supp. 58-4904(e), which relates to recapture, upon

the death of an account holder, of the amount of contributions to, or income earned from, an
account claimed as a subtraction modification provided under K.S.A. 79-32,117(c)(xxviii), when
there is no surviving beneficiary. The amendment changes the term "transfer on death" to "payable
on death" as it relates to a beneficiary.

   Section 4 of the Bill amends K.S.A. 2022 Supp. 58-4906 to provide direction to financial

institutions regarding the death of an account holder. New section (c) provides:

          (c) A financial institution may rely on such financial institution's account records
   for determining a payable on death beneficiary for a first-time home buyer savings
   account. If the payable on death beneficiary in a financial institution's account records
   conflicts with the designated beneficiary on any form required by the secretary under
   the first-time home buyer savings account act, the payable on death beneficiary in such
   financial institution's account records shall control.

  Section 5 of the Bill amends K.S.A. 2022 Supp. 79-32,117(b)(xviii), which establishes an

income tax addition modification recapture of certain amounts related to first-time home buyer
savings accounts. The amendment recognizes the change from the term "transfer on death" to

"payable on death" made to K.S.A. 2022 Supp. 58-5904(e) in Section 3. The subsection is
amended as follows:

       (xxviii) For all taxable years beginning after December 31, 2021, the amount of
 any contributions to, or earnings from, a first-time home buyer savings account if
 distributions from the account were not used to pay for expenses or transactions
 authorized pursuant to K.S.A. 2022 Supp. 58-4904, and amendments thereto, or were
 not held for the minimum length of time required pursuant to K.S.A. 2022 Supp. 58-
 4904, and amendments thereto. Contributions to, or earnings from, such account shall
 also include any amount resulting from the account holder not designating a surviving
 transfer payable on death beneficiary pursuant to K.S.A. 2022 Supp. 58-4904(e), and
 amendments thereto.

The provisions of the Bill will be effective for tax year 2022, and all subsequent years. Forms

and additional information are available through the Department's website at:
www.ksrevenue.gov.

                                 TAXPAYER ASSISTANCE

 Additional copies of this notice, forms or publications are available from our web site,

www.ksrevenue.gov. If you have questions about this Notice, please contact:

                              Taxpayer Assistance Center
                             Kansas Department of Revenue
                             Scott Office Building, 1st Floor
                                    120 SE 10th Ave
                                     P. O. Box 3506
                                Topeka, KS 66601-3506
                                  Phone: 785-368-8222
                                   Fax: 785-291-3614