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HB 7504

AN ACT RELATING TO TAXATION -- CATASTROPHE SAVINGS ACCOUNTS ACT

2026 Regular Session Introduced by Sam Azzinaro and 9 co-sponsors

Rhode Island would create Catastrophe Savings Accounts to deduct contributions and exempt earnings, funding deductible and out-of-pocket repair costs after disasters.

05/07/2026 Committee recommended measure be held for further study
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Bill Summary · HB 7504

Summary of HB 7504 (Rhode Island, 2026) – Catastrophe Savings Accounts Act

Purpose and intent

HB 7504 proposes creating a new tax regime for Rhode Island residents to encourage saving specifically for disaster-related expenses. The underlying idea is to provide a tax-advantaged vehicle—Catastrophe Savings Accounts (CSAs)—to set aside funds to pay for deductible costs and repair/replacement expenses from federally declared catastrophes affecting a primary residence. The bill establishes definitions, contribution limits, tax deductions, and rules for distributions and tax treatment.

Key provisions and changes

Establishment and definitions

  • Creates a new chapter, Chapter 73 of Title 44 (Taxation), named the Catastrophe Savings Account Act.
  • Defines:
    • Catastrophe savings account: a regular savings or money market account established by a resident taxpayer to cover qualified catastrophe expenses.
    • Catastrophic event: weather- and disaster-related events (e.g., windstorms, hurricanes, floods, earthquakes, etc.) declared as a disaster or emergency by the governor.
    • Qualified catastrophe expenses: (i) a qualified deductible paid for damage from a catastrophe; and (ii) repair or replacement costs to a primary residence not covered by homeowner’s insurance.
    • Qualified deductible: the deductible amount under the homeowner’s policy for catastrophe damage on the primary residence (highest deductible if multiple).

Account establishment

  • A taxpayer may establish one CSA per primary residence, clearly labeled for qualifying catastrophe expenses.
  • Only one CSA per primary residence is allowed.

Contributions and limits

  • Contribution limits depend on the taxpayer’s insured status and deductible:
    • If the qualified deductible is $1,000 or less: maximum contributions $2,000.
    • If the deductible is greater than $1,000: maximum contributions are the lesser of twice the deductible or $25,000.
    • If self-insured (chooses not to carry homeowners insurance): maximum contributions $250,000, but not exceeding the fair market value of the primary residence.
  • These limits cap total contributions into a CSA.

Tax treatment of contributions and earnings

  • Contributions to the CSA are deductible from Rhode Island income tax (title 44).
  • All interest income earned within the CSA is exempt from Rhode Island income tax.

Distributions and tax consequences

  • Distributions used for qualified catastrophe expenses are not included in gross income.
  • If aggregate distributions in a tax year exceed qualified catastrophe expenses for that year, excess distributions are included in income along with any CSA interest income.
  • If the year’s qualified catastrophe expenses meet or exceed all distributions, the distributions are not taxed as income.

Excess contributions and death

  • If a taxpayer contributes in excess of the limits and claims the deduction, the excess amount must be withdrawn and included in income in the withdrawal year.
  • Upon the taxpayer’s death, the CSA is included in the income of the recipient unless the recipient is the surviving spouse. After the surviving spouse’s death, the account is included in the income of the recipient.

Administration and effective date

  • The Rhode Island Division of Taxation will promulgate rules and regulations to implement and administer the act.
  • Effective date: takes effect July 1, 2026, and applies to taxable years beginning on or after January 1, 2027.

Who is affected

  • Individual Rhode Island taxpayers who own a primary residence and want to save for catastrophe-related expenses.
  • Taxpayers who purchase homeowners insurance and have identifiable deductible amounts relevant to catastrophic events.
  • Taxpayers who prefer self-insurance for their primary residence (subject to higher contribution limits, up to $250,000 but not exceeding residence fair market value).
  • The state tax administration (Division of Taxation) will implement rules and enforcement.

Procedural and timeline aspects

  • Introduction: February 4, 2026.
  • Referred to: House Finance.
  • Scheduling: The bill shows a hearing/consideration date in May 2026 (as of the action history).
  • Effective date: July 1, 2026.
  • Applicability: Taxable years beginning on or after January 1, 2027.
  • Regulatory framework: Requires rulemaking by the Division of Taxation to implement provisions.

Potential impacts and considerations

  • For residents with sizable catastrophe deductibles or high property values, CSAs could offer a targeted tax-advantaged way to fund deductible and out-of-pocket repair costs after disasters.
  • The deduction and tax-exemption for CSA earnings provide ongoing tax benefits on contributed dollars and interest.
  • Contributions are capped, limiting the overall value of tax-advantaged saving for catastrophe expenses.
  • The interaction with homeowner’s insurance deductibles and self-insurance options will shape participation and contribution behavior.
  • The program’s effectiveness will depend on clear rules, especially around “qualified catastrophe expenses” and how distributions are documented and audited.

Overall, HB 7504 creates a dedicated savings mechanism with tax advantages intended to help Rhode Island residents prepare financially for catastrophe-related costs to their primary residences.

Compiled from official sources — confirm details with the bill’s official record.

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