The proposed "First-Time Homebuyer Savings Account Act" establishes a new framework in Rhode Island's Title 44 concerning taxation, allowing first-time homebuyers to create savings accounts specifically for down payments and allowable closing costs associated with purchasing a home. The act defines key terms such as "account holder," "first-time homebuyer," and "qualified beneficiary," and mandates that account holders submit detailed information about their accounts with their state income tax returns. Notably, the bill allows contributions to these accounts to be deducted from taxable income, with limits set at $15,000 for individuals and $30,000 for joint filers, while also permitting joint ownership of accounts under certain conditions.

Furthermore, the bill introduces new legal language that excludes earnings from these accounts, including interest, from taxable income for Rhode Island income tax purposes, provided specific conditions are met. It imposes limitations on deductions and exclusions, including a maximum ten-year contribution period and a cap of $150,000 on the total principal amount. The legislation also establishes penalties for withdrawing funds for non-eligible purposes, including taxation of the withdrawn amount and a 10% penalty, with exceptions for death, disability, or bankruptcy. The Division of Taxation is tasked with creating necessary forms and requires annual reporting from account holders, with the act set to take effect upon passage.