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S 2640Income

Taxation - Catastrophe Savings Accounts Act

This bill allows homeowners to create tax-free savings accounts to pay for damages caused by declared disasters like hurricanes.

Held for study
Population
Affected
35
Introduced Feb 27, 2026Committee Senate Commerce

Plain-English Summary

This legislation establishes "Catastrophe Savings Accounts" for Rhode Island residents. It allows taxpayers to open a designated savings or money market account to save funds specifically for insurance deductibles or uninsured repairs related to declared disasters, such as hurricanes or floods. Contributions to these accounts are tax-deductible, and any interest earned or distributions used for qualified repairs are tax-exempt. The bill sets contribution limits based on the homeowner's insurance deductible, with a higher cap available for self-insured homeowners. The funds must be used for a primary residence.

For younger readers

This bill helps people who own homes save money for big storms. Sometimes, bad weather like a hurricane can break a house, and fixing it costs a lot. This law lets homeowners put money into a special savings account. The government will not charge taxes on this money if it is used to fix the house after a big disaster. It is like a piggy bank specifically for storm damage, helping families have money ready to repair their homes if something bad happens.

Who & Where It Applies

Impacted groups
HomeownersSelf-insured property ownersBanks and Financial InstitutionsRI Division of TaxationInsurance policyholders
Impacted communities
All

Constitutional & Fiscal Check

None Likely

Estimated cost
None
Estimated revenue
None

Bill Analysis

Both viewpoints
For Progressives
  • Promotes climate resilience by encouraging residents to financially prepare for the increasing frequency of extreme weather events, ensuring families can recover more quickly.
  • Provides a financial buffer for middle-class homeowners, potentially preventing them from falling into debt or poverty following a catastrophic loss of property.
  • Reduces the immediate strain on public disaster relief funds by empowering individuals to self-fund initial repairs, allowing public resources to be directed toward the most vulnerable populations.
  • Disproportionately benefits wealthy homeowners who have disposable income to save and those who can afford to self-insure up to $250,000, creating a tax shelter that is inaccessible to low-income families.
  • Excludes renters from the benefits, ignoring a highly vulnerable population that also suffers financial losses during natural disasters but does not own structural property.
  • Reduces state tax revenue through deductions and tax-exempt interest, depleting funds that could otherwise support social programs, public infrastructure, or direct climate aid for the poor.
For Conservatives
  • Encourages personal responsibility and self-reliance by incentivizing individuals to save for emergencies rather than relying on government bailouts or assistance.
  • Lowers the tax burden on property owners by offering deductions on income and eliminating taxes on interest earned within these accounts.
  • Supports property rights and the choice to self-insure, allowing those who opt out of the traditional insurance market to protect their assets without government penalty.
  • Increases the complexity of the tax code and expands bureaucracy by requiring the Division of Taxation to create and enforce new regulations for these specific accounts.
  • Grants the governor excessive executive power, as the tax-free use of the funds is contingent upon the governor officially declaring a disaster or emergency.
  • Interferes with the free market by using the tax code to socially engineer behavior (saving for specific types of events) rather than enacting broad-based tax cuts.

Votes

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Full Bill Text

Changes to existing Rhode Island law · 63 additions

SECTION 1. Title 44 of the General Laws entitled "TAXATION" is hereby amended by adding thereto the following chapter: 44-73-1. Short title. This chapter shall be known and may be cited as the "Catastrophe Savings Account Act." 44-73-2. Definitions. As used in this chapter:

(1) “Catastrophe savings account” means a regular savings account or money market account established by a resident taxpayer to pay for qualified catastrophe expenses.

(2) “Catastrophic event” means windstorms, cyclones, earthquakes, hurricanes, ice storms, tornadoes, high winds, floods, hail storms, and any other weather events or occurrences; provided that, such event or occurrence has been declared as a disaster or emergency by the governor.

(3) “Qualified catastrophe expenses” means:

(i) A qualified deductible paid for damage resulting from a catastrophic event; and

(ii) Expenses incurred in repairing or replacing damage to a taxpayer's primary residence as a result of a catastrophic event that are not covered by a homeowner's insurance policy.

(4) “Qualified deductible” means the deductible for the homeowner's insurance policy of the taxpayer covering catastrophic event damage for his or her primary residence. If such policy provides for more than one deductible, the deductible with the highest amount shall constitute the qualified deductible. 44-73-3. Establishment of account. A taxpayer may establish one catastrophe savings account pursuant to this chapter which shall be labeled as a catastrophe savings account and shall specify that the purpose of the account is to cover qualified catastrophe expenses. No more than one catastrophe savings account pursuant to this chapter shall be established for a primary residence. 44-73-4. Limitations on contributions.

(a) For a taxpayer whose qualified deductible is one thousand dollars ($1,000) or less, the total amount that may be contributed to a catastrophe savings account shall not exceed two thousand dollars ($2,000).

(b) For a taxpayer whose qualified deductible is greater than one thousand dollars ($1,000), the total amount that may be contributed to a catastrophe savings account shall not exceed the lesser of twice the amount of the taxpayer's qualified deductible or twenty-five thousand dollars ($25,000).

(c) For a self-insured taxpayer who chooses not to obtain insurance on his or her primary residence, the total amount that may be contributed to a catastrophe savings account shall not exceed two hundred fifty thousand dollars ($250,000); provided, however, that in no case shall the amount contributed to the catastrophe savings account exceed the fair market value of the taxpayer's primary residence. 44-73-5. Deduction for contributions.

(a) An individual taxpayer shall be allowed a deduction from the tax imposed pursuant to this title 44 for amounts contributed to a catastrophe savings account in accordance with this chapter.

(b) All interest income earned by a catastrophe savings account in compliance with this chapter shall be exempt from the tax imposed pursuant this title 44. 44-73-6. Distributions.\. A distribution from a catastrophe savings account shall be included in the income of the taxpayer unless the amount of the distribution is used to cover qualified catastrophe expenses; provided, however, that no such amount shall be included in the income of the taxpayer if the qualified catastrophe expenses of the taxpayer during the taxable year are equal to or greater than the aggregate distributions from such account during the taxable year. If the aggregate distributions during the taxable year from such account exceed the qualified catastrophe expenses of the taxpayer during the taxable year, the amount otherwise included in the taxpayer's income shall be reduced by the amount of the distributions for qualified catastrophe expenses and the amount of interest income earned by the catastrophe savings account. 44-73-7. Excess contributions. If a taxpayer contributes in excess of the limits provided in this chapter and claimed a deduction pursuant to § 44-73-5, the taxpayer shall withdraw the amount of the excess contributions and include that amount in the income of the taxpayer in the year of withdrawal. 44-73-8. Death of taxpayer. If a taxpayer who owns a catastrophe savings account dies, the taxpayer's account shall be included in the income of the person who receives the account, unless that person is the surviving spouse of the taxpayer. Upon the death of such a surviving spouse, the amount in the account shall be included in the income of the person who receives the account. 44-73-9. Rules and regulations. The division of taxation shall promulgate any rules and regulations necessary to implement and administer the provisions of this chapter.

SECTION 2. This act shall take effect on July 1, 2026, and shall be applicable to taxable years beginning on or after January 1, 2027.