The proposed bill introduces the "Catastrophe Savings Accounts Act" as a new chapter in Title 44 of the General Laws concerning taxation. This act allows resident taxpayers to establish a catastrophe savings account specifically for covering qualified expenses related to catastrophic events, such as natural disasters declared by the governor.

The bill defines key terms, including "catastrophe savings account," which refers to a regular savings or money market account established by a resident taxpayer to pay for qualified catastrophe expenses; "catastrophic event," which includes various weather-related disasters; and "qualified catastrophe expenses," which encompass the deductible paid for damage from a catastrophic event and expenses incurred in repairing or replacing damage to a taxpayer's primary residence that are not covered by a homeowner's insurance policy.

The act outlines limitations on contributions based on the taxpayer's insurance deductible. Taxpayers can contribute up to $2,000 if their qualified deductible is $1,000 or less. If the deductible exceeds $1,000, the maximum contribution is the lesser of twice the deductible or $25,000. For self-insured taxpayers who do not have insurance on their primary residence, the contribution limit is $250,000, provided it does not exceed the fair market value of the residence.

Additionally, the bill allows individual taxpayers to deduct contributions made to these accounts from their taxable income and exempts interest income earned from taxation. It specifies that distributions from the account will be included in the taxpayer's income unless used for qualified catastrophe expenses, with provisions for excess contributions requiring taxpayers to withdraw excess amounts and include them in their income for the year of withdrawal.

In the event of a taxpayer's death, the account will be included in the income of the recipient unless that person is the surviving spouse. Upon the death of the surviving spouse, the account amount will be included in the income of the person who receives it.

The act mandates that the division of taxation will promulgate necessary rules and regulations for implementation. The act is set to take effect on July 1, 2026, and will apply to taxable years beginning on or after January 1, 2027.