HR7185-119

What This Bill Does

The Home Savings Act creates a temporary tax exclusion for retirement savings used to buy a principal residence. For defined contribution plans, an employee can exclude from gross income distributions used for down payments or closing costs for the employee's principal residence or for an eligible relative's principal residence. Eligible relatives include a spouse, child, grandchild, or ancestor of the employee or spouse. Transfers of such distributions to an eligible relative for that relative's down payment or closing costs are not treated as gifts. Similar rules are added for section 403 annuity plans and annuity contracts, individual retirement plans, and eligible deferred compensation plans maintained by governmental employers. For IRA distributions, the bill specifies how section 72 basis rules apply by treating amounts as includible up to the amount that would have been includible if all IRAs were treated as one contract. The exclusion applies to distributions made in taxable years beginning after December 31, 2025, and generally terminates for taxable years beginning after December 31, 2030.

Who Benefits and How

Employees with defined contribution plans, 403 annuity participants, IRA owners, governmental 457 plan participants, first-time or repeat homebuyers, and eligible relatives such as spouses, children, grandchildren, and ancestors benefit because retirement savings could be used for down payments or closing costs without gross-income inclusion during the temporary window. Families helping relatives buy homes benefit from gift-tax relief when transferred distributions are used for qualifying housing costs. Home sellers, mortgage lenders, and title companies may benefit from more buyers able to fund closing cash.

Who Bears the Burden and How

Federal revenue collections and taxpayers bear the cost of excluding qualifying retirement distributions from income and excluding qualifying transfers from gift treatment. Retirement plan administrators, IRA custodians, payroll systems, tax preparers, mortgage closing agents, and IRS staff must identify qualifying principal-residence costs, eligible relatives, distribution timing, plan types, basis calculations, and the 2025-through-2030 effective window. Savers may reduce retirement balances to fund housing, creating long-term retirement-security tradeoffs.

Key Provisions

• Excludes defined contribution plan distributions used for down payments or closing costs on a principal residence from gross income.
• Extends similar exclusion rules to section 403 annuity plans and contracts, individual retirement plans, and governmental deferred compensation plans.
• Allows qualifying home purchases for the taxpayer or eligible relatives, including spouses, children, grandchildren, and ancestors.
• Provides gift-tax relief when distributions are transferred to eligible relatives and used for qualifying home costs.
• Applies special section 72 rules for IRA basis calculations.
• Applies to distributions after 2025 and terminates the exclusion after 2030.