Summary#
This bill creates a new tax-advantaged account called a down payment savings account (DPSA). An individual can open a DPSA to save cash for a first-time purchase of a principal residence. Contributions that the account owner makes in cash may be deducted on the owner’s tax return, subject to limits and income phaseouts. Distributions used only for qualified down payment expenses (down payment or closing costs) for a first-time homebuyer's purchase are not taxed. Nonqualified distributions are included in income and generally subject to a 20% additional tax, with limited exceptions for death or disability. The bill sets rules for account trustees, required reports, rollovers, and other technical tax changes. The rule takes effect for tax years beginning after December 31, 2025.
What it means for you#
- Who can use it: An individual age 18 or older who does not own a principal residence during the 3-year period before a contribution and who is a first-time homebuyer for the purchase. "First-time homebuyer" is defined by reference to section 36(c).
- Contributions: Must be made in cash by the account beneficiary (the owner). Employers cannot make contributions on behalf of the beneficiary except as allowed under similar rules cited in the bill.
- Deduction: Contributions the taxpayer makes to their DPSA may be deducted on the taxpayer’s return (the bill also makes this deduction available to non-itemizers).
- Qualified uses: Distributions used only for a down payment or closing costs for the beneficiary’s first-time purchase of a principal residence are excluded from income.
- Penalties and exceptions: Nonqualified distributions are included in gross income and subject to a 20% additional tax, except for distributions after death or for disability. Rollovers to another DPSA are allowed if completed within 60 days, with a limit of one such tax-free rollover per 1-year period.
- Account rules: Trustees must be a bank or another approved person, accounts cannot invest in life insurance, and assets cannot be commingled except in common trust or investment funds. Trustees must report contributions and distributions to the IRS and the beneficiary.
Expenses#
- Contribution limits: The deduction is limited each year to the lesser of the taxpayer’s earned income or $10,000 ($20,000 for joint filers).
- Income phaseout: The deduction phases out for modified adjusted gross income above $150,000 ($236,000 joint) and is fully phased out over the next $50,000 ($79,000 joint).
- Inflation adjustment: The dollar limits are indexed for inflation for tax years after 2025.
- Fiscal estimates: No publicly available information on the bill’s estimated effect on federal revenues or spending is included in the bill text or provided metadata.
Proponents' View#
No publicly available information.
Opponents' View#
No publicly available information.