AB 232 California Assembly · 2025-2026 Regular Session

Natural disasters: catastrophe savings accounts: personal income tax.

Summary

The Personal Income Tax Law, in modified conformity with federal income tax laws, allows various deductions from gross income in calculating adjusted gross income. This bill, for taxable years beginning on or after January 1, 2026, and before January 1, 2031, would allow a deduction from adjusted gross income for amounts contributed by a qualified taxpayer, as defined, to a catastrophe savings account, in accordance with specified provisions. The bill would define "catastrophe savings account" to mean a regular savings account or money market account with a financial institution that, among other requirements, is established to pay for the qualified catastrophe expenses, as defined, of a qualified taxpayer establishing the account, as provided. The bill would subject a qualified taxpayer to a specified penalty if they use a distribution from a catastrophe savings account to cover an expense other than a qualified catastrophe expense. The Personal Income Tax Law, in conformity with federal income tax law, generally defines "gross income" as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income. This bill, for taxable years beginning on or after January 1, 2026, and before January 1, 2031, would provide an exclusion from gross income for interest earned by a catastrophe savings account until December 1, 2030. Existing law requires any bill authorizing a new tax expenditure, as defined, to include tax credits, deductions, exclusions, or exemptions, to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements. This bill would include findings and reporting requirements in compliance with this requirement. This bill would take effect immediately as a tax levy.

Issues: ✓ Budget & Taxes

Bill status failed 1 of 4 stages cleared

Introduction

Jan 2025

Committee Review

Floor Vote

Governor

Introduced Jan 13, 2025 Last action Feb 2, 2026

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What changed between versions

04/11/25 - Amended Assembly → AB232 · 4 edits

MODERATE

The April 11, 2025 amendment to AB 232 made several substantive changes to the catastrophe savings account program: it delayed the effective date by one year (from 2025 to 2026), extended the sunset date by one year (from 2030 to 2031), simplified the annual contribution limits from three tiers to two, and broadened eligibility language from 'homeowner' to 'qualified taxpayer' (which includes married couples filing jointly). These changes give taxpayers an extra year before the program begins and slightly restructure how much they can contribute based on insurance status.

TIMELINE

The effective date for the tax deduction and interest exclusion was pushed back one year, from taxable years beginning on or after January 1, 2025, to January 1, 2026. The sunset date was extended from January 1, 2030, to January 1, 2031.

The first required reporting deadline from the Franchise Tax Board was pushed from May 1, 2026, to May 1, 2028, giving the program more time before its first legislative report is due.

FISCAL

Annual contribution limits were restructured from three tiers to two. Previously: (A) $2,000 if deductible was $1,000 or less, (B) lesser of $15,000 or twice the deductible if deductible exceeded $1,000, and (C) $250,000 capped at home value if uninsured. Now: (A) a flat $15,000 for insured taxpayers regardless of deductible amount, and (B) $250,000 capped at home value for uninsured taxpayers.

ELIGIBILITY

The term 'homeowner' was replaced with 'qualified taxpayer' throughout the tax code provisions. A 'qualified taxpayer' is defined as an individual or a married couple filing a joint return who owns a primary residence in California, broadening eligibility to explicitly include married couples.

01/13/25 - Introduced → 04/11/25 - Amended Assembly · 8 edits · Apr 11, 2025

MODERATE

The amended version of AB 232 significantly restructures the catastrophe savings account tax deduction by shifting the start date from 2025 to 2026, extending the end date from 2030 to 2031, broadening eligibility to married couples filing jointly, simplifying contribution limits from deductible-based tiers to flat amounts based on insurance status, expanding what qualifies as a covered expense to include property-level mitigation improvements, and specifying a concrete penalty rate of 2.5 percent for improper distributions.

Scope change

The bill's scope broadened in several ways: eligibility now explicitly includes married couples filing jointly; the covered expense category expanded to include property-level mitigation improvements beyond just disaster damage; and the contribution limits were simplified to flat amounts rather than being tied to specific deductible thresholds. The effective period shifted one year later (2026-2030 instead of 2025-2029).

TIMELINE

The taxable year window shifted from January 1, 2025 through December 31, 2029 to January 1, 2026 through December 31, 2030. The sunset date for the deduction section moved from December 1, 2030 to December 1, 2031.

ELIGIBILITY

Eligibility expanded from 'individual homeowner' to a new defined term 'qualified taxpayer,' which includes an individual or a married couple filing a joint return who owns a primary residence in California. This explicitly allows spouses to share the deduction.

REQUIREMENT

Contribution limits were restructured from three deductible-based tiers (up to $2,000 for deductibles of $1,000 or less; lesser of $15,000 or twice the deductible for higher deductibles; up to $250,000 capped at home value for uninsured) to two flat annual limits: $15,000 for insured homeowners and $250,000 for uninsured homeowners. The home-value cap on the uninsured tier was removed.

A new provision clarifies that any interest accruing to a catastrophe savings account after December 1, 2030 (now 2031) shall be included as gross income, addressing the tax treatment of residual interest after the exclusion sunsets.

DEFINITION

A new detailed definition of 'catastrophe savings account' was added to the tax section requiring: designation by the account holder, establishment by a qualified taxpayer (or spouses) for their exclusive benefit, being the only such account for that taxpayer, being established by a California residential property owner for their primary residence, and a written governing instrument specifying cash-only contributions and the account's purpose.

SCOPE

Qualified catastrophe expenses were expanded to include not only damage from Governor-declared emergencies (wildfire, flood, earthquake) but also expenses for incorporating property-level mitigation efforts as defined in Title 10 of the California Code of Regulations, Section 2644.9.

ENFORCEMENT

The penalty for using a distribution on non-qualified expenses was specified as 2.5 percent of the amount improperly distributed, replacing the original language that left the penalty amount to be determined by the Commissioner of Financial Protection and Innovation.

Performance indicators for legislative oversight were expanded from a single metric (number of taxpayers claiming the deduction) to three: number of taxpayers, average deduction amount, and total deductions. The first reporting deadline shifted from May 1, 2026 to May 1, 2028.

Floor votes

How they voted

No floor votes recorded yet.

Full legislative history

Actions timeline

Total actions

Key actions

Committee

Amendments

Feb 2, 2026

Lower · Passed

From committee: Filed with the Chief Clerk pursuant to Joint Rule 56.

lower

May 23, 2025

Lower · Passed

In committee: Held under submission.

lower

May 21, 2025

Committee

In committee: Set, first hearing. Referred to APPR. suspense file.

lower

May 14, 2025

Lower · Passed

In committee: Hearing postponed by committee.

lower

May 6, 2025

Lower · Passed

From committee: Do pass and re-refer to Com. on APPR. (Ayes 7. Noes 0.) (May 5). Re-referred to Com. on APPR.

lower

Apr 21, 2025

Committee

In committee: Set, first hearing. Referred to suspense file.

lower

Apr 21, 2025

Committee

Re-referred to Com. on REV. & TAX.

lower

Apr 11, 2025

Introduced

From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended.

lower

Mar 3, 2025

Lower · Passed

From committee: Do pass and re-refer to Com. on REV. & TAX. (Ayes 8. Noes 0.) (March 3). Re-referred to Com. on REV. & TAX.

lower

Feb 10, 2025

Committee

Referred to Coms. on B. & F. and REV. & TAX.

lower

Jan 14, 2025

Lower · Passed

From printer. May be heard in committee February 13.

lower

1 primary · 2 co-sponsors