HB 4136

83rd OREGON LEGISLATIVE ASSEMBLY--2026 Regular Session
  House Bill 4136
 Sponsored by Representative HARTMAN, Senators GOLDEN, NERON MISSLIN; Representatives GAMBA, HELM,
  LIVELY, WISE, Senators FREDERICK, GELSER BLOUIN, MANNING JR, PATTERSON, PHAM K,
  PROZANSKI, SOLLMAN (Presession filed.)
  SUMMARY
 The following summary is not prepared by the sponsors of the measure and is not a part of the body thereof subject
 to consideration by the Legislative Assembly. It is an editor’s brief statement of the essential features of the
 measure as introduced. The statement includes a measure digest written in compliance with applicable readability
 standards.
  Digest: The Act ends the tax deduction for mortgage interest paid for a taxpayer’s second home.
 (Flesch Readability Score: 61.8).
  Disallows, for purposes of personal income taxation, a mortgage interest deduction for a resi-
 dence other than the taxpayer’s principal residence, unless the taxpayer sells the residence or ac-
 tively markets the residence for sale.
  Establishes the Oregon Homeownership Opportunity Account. Transfers an amount equal to the
 estimated increase in revenue attributable to restrictions on the deduction of mortgage interest to
 the account, for the purpose of making down payment assistance payments.
  Applies to tax years beginning on or after January 1, 2026.
  Takes effect on the 91st day following adjournment sine die.
1A BILL FOR AN ACT
2 Relating to tax treatment of mortgage interest; creating new provisions; amending ORS 316.695; and
3      prescribing an effective date.
4 Be It Enacted by the People of the State of Oregon:
5      SECTION 1. ORS 316.695 is amended to read:
6      316.695. (1) In addition to the modifications to federal taxable income contained in this chapter,
7 there shall be added to or subtracted from federal taxable income:
8      (a) If, in computing federal income tax for a tax year, the taxpayer deducted itemized deductions,
9 as defined in section 63(d) of the Internal Revenue Code, the taxpayer shall add the amount of
10 itemized deductions deducted (the itemized deductions less an amount, if any, by which the itemized
11 deductions are reduced under section 68 of the Internal Revenue Code).
12      (b) If, in computing federal income tax for a tax year, the taxpayer deducted the standard de-
13 duction, as defined in section 63(c) of the Internal Revenue Code, the taxpayer shall add the amount
14 of the standard deduction deducted.
15      (c)(A) From federal taxable income there shall be subtracted the larger of (i) the taxpayer’s
16 itemized deductions or (ii) a standard deduction. Except as provided in subsection (8) of this section,
17 for purposes of this subparagraph, “standard deduction” means the sum of the basic standard de-
18 duction and the additional standard deduction.
19      (B) For purposes of subparagraph (A) of this paragraph, the basic standard deduction is:
20      (i) $3,280, in the case of joint return filers or a surviving spouse;
21      (ii) $1,640, in the case of an individual who is not a married individual and is not a surviving
22 spouse;
23      (iii) $1,640, in the case of a married individual who files a separate return; or
24      (iv) $2,640, in the case of a head of household.
25      (C)(i) For purposes of subparagraph (A) of this paragraph for tax years beginning on or after
 NOTE: Matter in boldfaced type in an amended section is new; matter [italic and bracketed] is existing law to be omitted.
 New sections are in boldfaced type.
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  HB 4136
1 January 1, 2003, the Department of Revenue shall annually recompute the basic standard deduction
2 for each category of return filer listed under subparagraph (B) of this paragraph. The basic standard
3 deduction shall be computed by dividing the monthly averaged U.S. City Average Consumer Price
4 Index for the 12 consecutive months ending August 31 of the prior calendar year by the average
5 U.S. City Average Consumer Price Index for the second quarter of 2002, then multiplying that quo-
6 tient by the amount listed under subparagraph (B) of this paragraph for each category of return
7 filer.
8      (ii) If any change in the maximum household income determined under this subparagraph is not
9 a multiple of $5, the increase shall be rounded to the next lower multiple of $5.
10      (iii) As used in this subparagraph, “U.S. City Average Consumer Price Index” means the U.S.
11 City Average Consumer Price Index for All Urban Consumers (All Items) as published by the Bureau
12 of Labor Statistics of the United States Department of Labor.
13      (D) For purposes of subparagraph (A) of this paragraph, the additional standard deduction is the
14 sum of each additional amount to which the taxpayer is entitled under subsection (7) of this section.
15      (E) As used in subparagraph (B) of this paragraph, “surviving spouse” and “head of household”
16 have the meanings given those terms in section 2 of the Internal Revenue Code.
17      (F) In the case of the following, the standard deduction referred to in subparagraph (A) of this
18 paragraph shall be zero:
19      (i) One of the spouses in a marriage filing a separate return where the other spouse has claimed
20 itemized deductions under subparagraph (A) of this paragraph;
21      (ii) A nonresident noncitizen;
22      (iii) An individual making a return for a period of less than 12 months on account of a change
23 in the individual’s annual accounting period;
24      (iv) An estate or trust;
25      (v) A common trust fund; or
26      (vi) A partnership.
27      (d) For the purposes of paragraph (c)(A) of this subsection, the taxpayer’s itemized deductions
28 are the amount of the taxpayer’s itemized deductions as defined in section 63(d) of the Internal Re-
29 venue Code (reduced, if applicable, as described under section 68 of the Internal Revenue Code)
30 minus:
31      (A) The deduction for Oregon income tax (reduced, if applicable, by the proportion that the re-
32 duction in federal itemized deductions resulting from section 68 of the Internal Revenue Code bears
33 to the amount of federal itemized deductions as defined for purposes of section 68 of the Internal
34 Revenue Code)[.]; and
35      (B) Any portion of the deduction for qualified residence interest paid or accrued on
36 indebtedness with respect to a qualified residence other than the taxpayer’s principal resi-
37 dence.
38      (e) Notwithstanding paragraph (d)(B) of this subsection, a deduction for qualified resi-
39 dence interest paid or accrued on indebtedness with respect to a qualified residence other
40 than the taxpayer’s principal residence is included in the taxpayer’s itemized deduction if:
41      (A) The qualified residence that is not the taxpayer’s current principal residence was the
42 taxpayer’s principal residence during the tax year or during the period three months prior
43 to the start of the tax year; and
44      (B) The taxpayer sold a qualified residence during the tax year or was actively marketing
45 a qualified residence at the close of the tax year.
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  HB 4136
1     (2)(a) There shall be subtracted from federal taxable income any portion of the distribution of
2 a pension, profit-sharing, stock bonus or other retirement plan, representing that portion of contri-
3 butions which were taxed by the State of Oregon but not taxed by the federal government under
4 laws in effect for tax years beginning prior to January 1, 1969, or for any subsequent year in which
5 the amount that was contributed to the plan under the Internal Revenue Code was greater than the
6 amount allowed under this chapter.
7     (b) Interest or other earnings on any excess contributions of a pension, profit-sharing, stock
8 bonus or other retirement plan not permitted to be deducted under paragraph (a) of this subsection
9 may not be added to federal taxable income in the year earned by the plan and may not be sub-
10 tracted from federal taxable income in the year received by the taxpayer.
11     (3)(a) Except as provided in subsection (4) of this section, there shall be added to federal taxable
12 income the amount of any federal income taxes in excess of the amount provided in paragraphs (b)
13 to (d) of this subsection, accrued by the taxpayer during the tax year as described in ORS 316.685,
14 less the amount of any refund of federal taxes previously accrued for which a tax benefit was re-
15 ceived.
16     (b) The limits applicable to this subsection are:
17     (A) $5,500, if the federal adjusted gross income of the taxpayer for the tax year is less than
18 $125,000, or, if reported on a joint return, less than $250,000.
19     (B) $4,400, if the federal adjusted gross income of the taxpayer for the tax year is $125,000 or
20 more and less than $130,000, or, if reported on a joint return, $250,000 or more and less than
21 $260,000.
22     (C) $3,300, if the federal adjusted gross income of the taxpayer for the tax year is $130,000 or
23 more and less than $135,000, or, if reported on a joint return, $260,000 or more and less than
24 $270,000.
25     (D) $2,200, if the federal adjusted gross income of the taxpayer for the tax year is $135,000 or
26 more and less than $140,000, or, if reported on a joint return, $270,000 or more and less than
27 $280,000.
28     (E) $1,100, if the federal adjusted gross income of the taxpayer for the tax year is $140,000 or
29 more and less than $145,000, or, if reported on a joint return, $280,000 or more and less than
30 $290,000.
31     (c) If the federal adjusted gross income of the taxpayer is $145,000 or more for the tax year, or,
32 if reported on a joint return, $290,000 or more, the limit is zero and the taxpayer is not allowed a
33 subtraction for federal income taxes under ORS 316.680 (1) for the tax year.
34     (d) In the case of spouses in a marriage filing separate tax returns, the amount added shall be
35 in the amount of any federal income taxes in excess of 50 percent of the amount provided for indi-
36 vidual taxpayers under paragraphs (a) to (c) of this subsection, less the amount of any refund of
37 federal taxes previously accrued for which a tax benefit was received.
38     (e) For purposes of this subsection, the limits applicable to a joint return shall apply to a head
39 of household or a surviving spouse, as defined in section 2(a) and (b) of the Internal Revenue Code.
40     (f)(A) For a calendar year beginning on or after January 1, 2008, the Department of Revenue
41 shall make a cost-of-living adjustment to the federal income tax threshold amounts described in
42 paragraphs (b) and (d) of this subsection.
43     (B) The cost-of-living adjustment for a calendar year is the percentage by which the monthly
44 averaged U.S. City Average Consumer Price Index for the 12 consecutive months ending August 31
45 of the prior calendar year exceeds the monthly averaged index for the period beginning September
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1 1, 2005, and ending August 31, 2006.
2     (C) As used in this paragraph, “U.S. City Average Consumer Price Index” means the U.S. City
3 Average Consumer Price Index for All Urban Consumers (All Items) as published by the Bureau of
4 Labor Statistics of the United States Department of Labor.
5     (D) If any adjustment determined under subparagraph (B) of this paragraph is not a multiple of
6 $50, the adjustment shall be rounded to the next lower multiple of $50.
7     (E) The adjustment shall apply to all tax years beginning in the calendar year for which the
8 adjustment is made.
9     (4)(a) In addition to the adjustments required by ORS 316.130, a full-year nonresident individual
10 shall add to taxable income a proportion of any accrued federal income taxes as computed under
11 ORS 316.685 in excess of the amount provided in subsection (3) of this section in the proportion
12 provided in ORS 316.117.
13     (b) In the case of spouses in a marriage filing separate tax returns, the amount added under this
14 subsection shall be computed in a manner consistent with the computation of the amount to be
15 added in the case of spouses in a marriage filing separate returns under subsection (3) of this sec-
16 tion. The method of computation shall be determined by the Department of Revenue by rule.
17     (5) Subsections (3)(d) and (4)(b) of this section shall not apply to married individuals living apart
18 as defined in section 7703(b) of the Internal Revenue Code.
19     (6)(a) For tax years beginning on or after January 1, 1981, and prior to January 1, 1983, income
20 or loss taken into account in determining federal taxable income by a shareholder of an S corpo-
21 ration pursuant to sections 1373 to 1375 of the Internal Revenue Code shall be adjusted for purposes
22 of determining Oregon taxable income, to the extent that as income or loss of the S corporation,
23 they were required to be adjusted under the provisions of ORS chapter 317.
24     (b) For tax years beginning on or after January 1, 1983, items of income, loss or deduction taken
25 into account in determining federal taxable income by a shareholder of an S corporation pursuant
26 to sections 1366 to 1368 of the Internal Revenue Code shall be adjusted for purposes of determining
27 Oregon taxable income, to the extent that as items of income, loss or deduction of the shareholder
28 the items are required to be adjusted under the provisions of this chapter.
29     (c) The tax years referred to in paragraphs (a) and (b) of this subsection are those of the S
30 corporation.
31     (d) As used in paragraph (a) of this subsection, an S corporation refers to an electing small
32 business corporation.
33     (7)(a) The taxpayer shall be entitled to an additional amount, as referred to in subsection
34 (1)(c)(A) and (D) of this section, of $1,000:
35     (A) For the taxpayer if the taxpayer has attained age 65 before the close of the taxpayer’s tax
36 year; and
37     (B) For the spouse of the taxpayer if the spouse has attained age 65 before the close of the tax
38 year and an additional exemption is allowable to the taxpayer for such spouse for federal income
39 tax purposes under section 151(b) of the Internal Revenue Code.
40     (b) The taxpayer shall be entitled to an additional amount, as referred to in subsection (1)(c)(A)
41 and (D) of this section, of $1,000:
42     (A) For the taxpayer if the taxpayer is blind at the close of the tax year; and
43     (B) For the spouse of the taxpayer if the spouse is blind as of the close of the tax year and an
44 additional exemption is allowable to the taxpayer for such spouse for federal income tax purposes
45 under section 151(b) of the Internal Revenue Code. For purposes of this subparagraph, if the spouse
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  HB 4136
1 dies during the tax year, the determination of whether such spouse is blind shall be made imme-
2 diately prior to death.
3     (c) In the case of an individual who is not married and is not a surviving spouse, paragraphs (a)
4 and (b) of this subsection shall be applied by substituting “$1,200” for “$1,000.”
5     (d) For purposes of this subsection, an individual is blind only if the individual’s central visual
6 acuity does not exceed 20/200 in the better eye with correcting lenses, or if the individual’s visual
7 acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the
8 widest diameter of the visual field subtends an angle no greater than 20 degrees.
9     (8) In the case of an individual with respect to whom a deduction under section 151 of the
10 Internal Revenue Code is allowable for federal income tax purposes to another taxpayer for a tax
11 year beginning in the calendar year in which the individual’s tax year begins, the basic standard
12 deduction (referred to in subsection (1)(c)(B) of this section) applicable to such individual for such
13 individual’s tax year shall equal the lesser of:
14     (a) The amount allowed to the individual under section 63(c)(5) of the Internal Revenue Code for
15 federal income tax purposes for the tax year for which the deduction is being claimed; or
16     (b) The amount determined under subsection (1)(c)(B) of this section.
17     SECTION 2. On or before May 1 of each year, beginning with May 1, 2028, the Department
18 of Revenue shall:
19     (1) For tax years beginning on or after January 1 of the year preceding the immediately
20 preceding year and ending before January 1 of the preceding year, estimate the increase, if
21 any, in the amount of personal income tax revenue received by the department that is at-
22 tributable to the amendments to ORS 316.695 by section 1 of this 2026 Act; and
23     (2) Transfer an amount equal to the estimate required under subsection (1) of this sec-
24 tion to the Oregon Housing Fund created under ORS 458.620, to be credited to the Oregon
25 Homeownership Opportunity Account established in section 4 of this 2026 Act.
26     SECTION 3. Section 4 of this 2026 Act is added to and made a part of ORS chapter 458.
27     SECTION 4. The Oregon Homeownership Opportunity Account is established in the State
28 Treasury,   separate      and   distinct   from    the   General   Fund.   Moneys    in   the   Oregon
29 Homeownership Opportunity Account are continuously appropriated to the Housing and
30 Community Services Department to be used solely for the purpose of making down payment
31 assistance payments that are administered through home ownership programs or nonprofit
32 organizations.
33     SECTION 5. The amendments to ORS 316.695 by section 1 of this 2026 Act apply to tax
34 years beginning on or after January 1, 2026.
35     SECTION 6. This 2026 Act takes effect on the 91st day after the date on which the 2026
36 regular session of the Eighty-third Legislative Assembly adjourns sine die.
37
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