HR7051-119

What This Bill Does

The American Dream Act uses the tax code to encourage older property owners to sell lower-priced homes to first-time homebuyers. It adds new Internal Revenue Code section 121A. A taxpayer can exclude gain from gross income when the seller, or either spouse on a joint return, is at least 65 on the sale date; the buyer is a first-time homebuyer purchasing the property as a principal residence; the sale price is not more than $500,000; and the closing documents include a buyer statement under penalty of perjury that the buyer is a first-time homebuyer and will use the property as a principal residence. First-time homebuyer means the individual, and the individual's spouse if any, has never had a present ownership interest in a principal residence before the sale. Section 121, the general principal-residence exclusion, does not apply to a sale covered by section 121A. The new exclusion applies to sales after December 31, 2026, in taxable years ending after that date, and expires for sales after December 31, 2031.

Who Benefits and How

Homeowners age 65 or older benefit because they can avoid federal income tax on qualifying real-property gain when they sell to an eligible first-time homebuyer under the $500,000 price cap. First-time homebuyers benefit because sellers may have a tax incentive to accept qualifying offers for principal residences. Real estate agents, closing agents, and affordable-home markets may benefit from added transaction activity for qualifying homes. Families trying to enter homeownership benefit if the exclusion increases supply in the starter-home segment.

Who Bears the Burden and How

Federal revenue collections bear the cost because qualifying gain is excluded from taxable income. The Internal Revenue Service must administer a new section 121A, update forms and guidance, and enforce buyer statements made under penalty of perjury. Sellers must verify age, sale price, buyer status, principal-residence use, and coordination with section 121. First-time buyers must make a legally significant statement in closing documents. Tax preparers, real estate closing agents, and title companies must help document eligibility and sunset timing.

Key Provisions

• Creates Internal Revenue Code section 121A for sales by taxpayers age 65 or older to first-time homebuyers.
• Excludes qualifying gain from gross income when the sale price does not exceed $500,000.
• Requires closing documents to include a buyer statement under penalty of perjury about first-time homebuyer status and principal-residence use.
• Defines first-time homebuyer by absence of any prior present ownership interest in a principal residence by the buyer or spouse.
• Bars use of the general section 121 principal-residence exclusion for sales covered by section 121A.
• Terminates the exclusion for sales after December 31, 2031.