Qualified first-time homeowner assistance program

(a)

In general

Part VIII of subchapter F of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

530A.

Qualified first-time homeowner assistance program

(a)

General rule

A qualified first-time homeowner assistance program shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, such program shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations). (b)

Qualified first-Time homeowner assistance program

For purposes of this section— (1)

In general

The term qualified first-time homeowner assistance program means a program established and maintained by a State, or agency or instrumentality thereof— (A)under which a person may make contributions to a first-time homeowner assistance account, (B)under which neither contributors nor beneficiaries are prohibited by reason of residency within the State, and (C)which meets the other requirements of this subsection. (2)

Cash contributions

A program shall not be treated as a qualified first-time homeowner assistance program unless it provides that contributions— (A)may only be made in cash, (B)may not be made after the date on which the account beneficiary attains age 40, or (C)except in the case of rollover contributions, if such contribution would result in aggregate contributions for all taxable years exceeding $20,000. (3)

Separate accounting

A program shall not be treated as a qualified first-time homeowner assistance program unless it provides separate accounting for each designated beneficiary. (4)

Limited investment direction

A program shall not be treated as a qualified first-time homeowner assistance program unless it provides that any contributor to, or designated beneficiary under, such program may, directly or indirectly, direct the investment of any contributions to the program (or any earnings thereon) no more than 2 times in any calendar year. (5)

No pledging of interest as security

A program shall not be treated as a qualified first-time homeowner assistance program if it allows any interest in the program or any portion thereof to be used as security for a loan. (6)

Certain restrictions disallowed

A program shall not be treated as a qualified first-time homeowner assistance program unless, with respect to each first-time homeowner assistance account, the program does not— (A)prohibit the designated beneficiary from acquiring or constructing a principal residence outside of the State, (B)limit any State tax preferences for contributions to these accounts based on the residence of the contributor or the designated beneficiary, or (C)condition withdrawals, or limit any State tax preferences for withdrawals, from these accounts from being applied only with respect to residences located within the State. (c)

First-Time homeowner assistance account

For purposes of this section— (1)

In general

The term first-time homeowner assistance account means an account established under a qualified first-time homeowner assistance program for the purpose of providing qualified down payment assistance to the designated beneficiary of the account. (2)

Qualified down payment assistance

(A)

In general

The term qualified down payment assistance means a distribution— (i)to a designated beneficiary who is a first-time homeowner of a principal residence in the United States, (ii)under a qualified first-time homeowner assistance program in connection with the acquisition, construction, or substantial improvement of a principal residence at or before the time of such acquisition or construction, and (iii)the amount of which, when added to all prior qualified down payment assistance under this subparagraph during any taxable year, does not exceed 10 percent of the cost of acquiring, constructing, or substantially improving the principal residence of the designated beneficiary. (B)

First-time homeowner

The term first-time homeowner means any individual if such individual (and if married, such individual’s spouse) had no present ownership interest in a principal residence during the 3-year period ending on the date of the acquisition, construction, or substantial improvement of the principal residence. (C)

Principal residence

The term principal residence has the same meaning as when used in section 121. (D)

Exception

A residence may be taken into account for purposes of this paragraph only if— (i)the residence is not acquired from a person related to the person acquiring such residence (or, if married, such individual’s spouse), and (ii)the basis of the residence in the hands of the person acquiring such residence is not determined— (I)in whole or in part by reference to the adjusted basis of such residence in the hands of the person from whom acquired, or (II)under section 1014(a) (relating to property acquired from a decedent). (E)

Construction

A residence which is constructed by the taxpayer shall be treated as purchased by the taxpayer on the date the taxpayer first occupies such residence. (F)

Special rules relating to marriage

(i)

Married couples must file joint return

If the designated beneficiary is married on the date of the distribution, the distribution shall not be treated as qualified down payment assistance unless the taxpayer and the taxpayer’s spouse file a joint return for the taxable year. (ii)

Marital status

An individual legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married. (3)

Designated beneficiary

The term designated beneficiary with respect to a first-time homeowner assistance account means— (A)the individual designated at the establishment of the account as the beneficiary of amounts paid (or to be paid) to the account, and (B)in the case of a change in beneficiaries described in subsection (d)(3)(C), the individual who is the new beneficiary of the account. (4)

Member of family

The term member of the family means, with respect to any designated beneficiary— (A)the spouse of such beneficiary, (B)an individual who bears a relationship to such beneficiary which is described in subparagraphs (A) through (G) of section 152(d)(2), (C)the spouse of any individual described in subparagraph (B), and (D)any first cousin of such beneficiary. (d)

Tax treatment of designated beneficiaries and contributors

(1)

In general

Except as otherwise provided in this subsection, no amount shall be includible in gross income of— (A)a designated beneficiary under a qualified first-time homeowner assistance program, or (B)a contributor to such program on behalf of a designated beneficiary, with respect to any distribution or earnings under such program. (2)

Gift tax treatment of contributions

For purposes of chapters 12 and 13— (A)

In general

Any contribution to a qualified first-time homeowner assistance program on behalf of any designated beneficiary— (i)shall be treated as a completed gift to such beneficiary which is not a future interest in property, and (ii)shall not be treated as a qualified transfer under section 2503(e). (B)

Treatment of excess contributions for gift tax purposes

If the aggregate amount of contributions described in subparagraph (A) during the calendar year by a donor exceeds the limitation for such year under section 2503(b), such aggregate amount shall, at the election of the donor, be taken into account for purposes of such section ratably over the 5-year period beginning with such calendar year. (3)

Distributions

(A)

In general

Any distribution under a qualified first-time homeowner assistance program shall be includible in the gross income of the distributee in the manner as provided under section 72 to the extent not excluded from gross income under this paragraph. (B)

Distributions for qualified down payment assistance

For purposes of this paragraph, if— (i)distributions under a qualified first-time homeowner assistance program do not exceed the qualified down payment assistance, no amount shall be includible in gross income, and (ii)in any other case, the amount otherwise includible in gross income shall be reduced by an amount which bears the same ratio to such amount as such assistance bear to such distributions. (C)

Change in beneficiaries or programs

(i)

Rollovers

Subparagraph (A) shall not apply to that portion of any distribution which, within 60 days of such distribution, is transferred— (I)to another qualified distribution under a qualified first-time homeowner assistance program or the benefit of the designated beneficiary, or (II)to the credit of another designated beneficiary under a qualified distribution under a qualified first-time homeowner assistance program who is a member of the family of the designated beneficiary with respect to which the distribution was made. (ii)

Change in designated beneficiaries

Any change in the designated beneficiary of an interest in a qualified distribution under a qualified first-time homeowner assistance program shall not be treated as a distribution for purposes of subparagraph (A) if the new beneficiary is a member of the family of the old beneficiary. (iii)

Limitation on certain rollovers

Clause (i)(I) shall not apply to any transfer if such transfer occurs within 12 months from the date of a previous transfer to any qualified distribution under a qualified first-time homeowner assistance program for the benefit of the designated beneficiary. (4)

Estate tax treatment

(A)

In general

No amount shall be includible in the gross estate of any individual for purposes of chapter 11 by reason of an interest in a qualified distribution under a qualified first-time homeowner assistance program. (B)

Amounts includible in estate of designated beneficiary in certain cases

Subparagraph (A) shall not apply to amounts distributed on account of the death of a beneficiary. (C)

Amounts includible in estate of donor making excess contributions

In the case of a donor who makes the election described in paragraph (2)(B) and who dies before the close of the 5-year period referred to in such paragraph, notwithstanding subparagraph (A), the gross estate of the donor shall include the portion of such contributions properly allocable to periods after the date of death of the donor. (5)

Other gift tax rules

For purposes of chapters 12 and 13— (A)

Treatment of distributions

Except as provided in subparagraph (B), in no event shall a distribution from a qualified distribution under a qualified first-time homeowner assistance program be treated as a taxable gift. (B)

Treatment of designation of new beneficiary

The taxes imposed by chapters 12 and 13 shall apply to a transfer by reason of a change in the designated beneficiary under the program (or a rollover to the account of a new beneficiary) unless the new beneficiary is— (i)assigned to the same generation as (or a higher generation than) the old beneficiary (determined in accordance with section 2651), and (ii)a member of the family of the old beneficiary. (6)

Additional tax for distributions not used for qualified downpayment assistance

(A)

In general

The tax imposed by this chapter for any taxable year on any taxpayer who receives a payment or distribution from a qualified first-time homeowner assistance program which is includible in gross income shall be increased by 10 percent of the amount which is so includible. (B)

Exceptions

Subparagraph (A) shall not apply if the payment or distribution is— (i)made to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary, (ii)attributable to the designated beneficiary’s being disabled (within the meaning of section 72(m)(7)), or (iii)an amount which is includible in gross income solely by application of paragraph (2)(C)(i)(II) for the taxable year. (C)

Contributions returned before certain date

Subparagraph (A) shall not apply to the distribution of any contribution made during a taxable year on behalf of the designated beneficiary if— (i)such distribution is made before the first day of the sixth month of the taxable year following the taxable year, and (ii)such distribution is accompanied by the amount of net income attributable to such excess contribution.

Any net income described in clause (ii) shall be included in gross income for the taxable year in which such excess contribution was made.

(e)

Reports

Each officer or employee having control of the qualified distribution under a qualified first-time homeowner assistance program or their designee shall make such reports regarding such program to the Secretary and to designated beneficiaries with respect to contributions, distributions, and such other matters as the Secretary may require. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the Secretary. (f)

Regulations

Notwithstanding any other provision of this section, the Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section and to prevent abuse of such purposes, including regulations under chapters 11, 12, and 13 of this title.

(b)

Conforming amendments

(1)

Tax on Excess Contributions

(A)

In general

Subsection (a) of section 4973 of such Code is amended by striking or at the end of paragraph (5), by inserting or at the end of paragraph (6), and by inserting after paragraph (6) the following new paragraph:

(7)a first-time homeowner assistance account (as defined in section 530A),

(B)

Excess contribution

Section 4973 of such Code is amended by adding at the end the following new subsection:

(i)

Excess Contributions to first-Time homeowner assistance account

For purposes of this section— (1)

In general

In the case of a first-time homeowner assistance account (as defined in section 530A) (within the meaning of section 529A), the term excess contributions means the amount by which the amount contributed for the taxable year to such account (other than contributions under section 530A(d)(3)(C)) exceeds the contribution limit under section 530A(b)(2)(C). (2)

Special rule

For purposes of this subsection, any contribution which is distributed out of the first-time homeowner assistance account (as so defined) in a distribution to which the last sentence of section 530A(d)(6)(C) applies shall be treated as an amount not contributed.

(2)Section 26(b)(2) is amended by striking and at the end of subparagraph (X), by striking the period at the end of subparagraph (Y) and inserting , and, and by inserting after subparagraph (Y) the following:

(Z)section 530A(d)(3)(A) (relating to additional tax on first-time homeowner assistance account distributions not used for qualified homeowner assistance).

(3)

Penalty for Failure to File Reports

Section 6693(a)(2) of such Code is amended by striking and at the end of subparagraph (E), by striking the period at the end of subparagraph (F) and inserting , and, and by inserting after subparagraph (F) the following:

(G)section 530A(e) (relating to qualified first-time homeowner assistance program), and

(4)Section 877A of such Code is amended— (A)in subsection (e)(2) by inserting a qualified first-time homeowner assistance program (as defined in section 530A), after 530),, and (B)in subsection (g)(6) by inserting 530A(c)(3), after 529(c)(3),. (5)Section 4965(c) of such Code is amended by striking or at the end of paragraph (7), by striking the period at the end of paragraph (8) and inserting , or, and by inserting after paragraph (8) the following new paragraph:

(9)a program described in section 530A.

(c)

Clerical amendment

The table of sections for part VIII of subchapter F of chapter 1 of such Code is amended by adding at the end the following new item:

Sec. 530A. Qualified first-time homeowner assistance program.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.