Establishment of home ownership mortgage expense accounts

(a)

In general

Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions for individuals) is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section:

224.

Home Ownership Mortgage Expense Accounts

(a)

Deduction allowed

In the case of an individual (other than an illegal alien), there shall be allowed as a deduction an amount equal to the aggregate amount paid in cash for the taxable year by such individual to a Home Ownership Mortgage Expense Account established for the benefit of such individual. (b)

Maximum amount of deduction

The amount allowable as a deduction under subsection (a) to any individual for any taxable year shall not exceed an amount equal to 50 percent of the limitation under section 219(b)(1) for such year, determined without regard to subparagraphs (B) and (C) of section 219(b)(5). (c)

Reduction in deduction based on adjusted gross income

(1)

In general

The dollar limitation otherwise applicable under subsection (b) for a taxable year shall be reduced (but not below zero) by the amount determined under paragraph (2). (2)

Amount of reduction

(A)

In general

The amount determined under this paragraph with respect to such dollar limitation shall be the amount which bears the same ratio to such limitation as— (i)the excess of— (I)the taxpayer's adjusted gross income for such taxable year, over (II)the applicable dollar amount for such taxable year under section 408A(c)(3) (relating to Roth IRA’s), bears to (ii)$10,000 ($20,000 in the case of a joint return for a taxable year). (B)

No reduction below $200 until complete phase-out

Such dollar limitation shall not be reduced below $200 under paragraph (1) unless (without regard to this subparagraph) such limitation is reduced to zero. (C)

Rounding

Any amount determined under this paragraph which is not a multiple of $10 shall be rounded to the next lowest $10. (3)

Adjusted gross income

For purposes of this subsection, adjusted gross income shall be determined— (A)without regard to this section and sections 911, 931, and 933, and (B)after application of sections 86, 135, 137, 219, 221, 222, and 469. (d)

Home ownership mortgage expense account

For purposes of this section, the terms Home Ownership Mortgage Expense Account and Home Account mean a trust created or organized in the United States for the exclusive benefit of an individual, but only if the written governing instrument creating the trust meets the following requirements: (1)No contribution will be accepted unless it is in cash. (2)The trustee is a bank (as defined in section 408(n)) or another person who demonstrates to the satisfaction of the Secretary that the manner in which that person will administer the trust will be consistent with the requirements of this section. (3)No part of the trust assets will be invested in any collectible (as defined in section 408(m)). (4)The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund. (e)

Tax treatment of distributions

(1)

In general

Except as otherwise provided in this subsection, any amount distributed out of a HOME Account shall be included in gross income by the distributee unless such amount is part of a qualified home distribution. (2)

Qualified home distribution

For purposes of this subsection— (A)

In general

Except as provided in subparagraph (B), the term qualified home distribution means any payment or distribution received by an individual to the extent such payment or distribution is used by the individual within a reasonable period to pay— (i)qualified acquisition costs (as defined in section 72(t)(8)(C)) with respect to the principal residence (within the meaning of section 121) of such individual, or (ii)costs to remodel such residence. (B)

Limitations

(i)

Half of remodeling payments included in income

50 percent of any qualified home distribution described in subparagraph (A)(ii) shall be included in gross income by the distributee. (ii)

Acquisition indebtedness on principal residence must be fixed rate and self-amortizing

Subparagraph (A) shall apply to a distribution with respect to a principal residence only if, with respect to all acquisition indebtedness (as defined in section 163(h)(3)(B)) secured by such residence— (I)the interest rate on the indebtedness is the same throughout the term of the indebtedness, and (II)substantially level amortization of such indebtedness (with payments not less frequently than quarterly) is required over the term of the indebtedness. (iii)

Debt payments may not be made

In no event shall the term qualified home distribution include payment of principal or interest on any indebtedness. (3)

Contributions returned before due date of return

Paragraph (1) shall not apply to the distribution of any contribution paid during a taxable year to a HOME Account if— (A)such distribution is received on or before the day prescribed by law (including extensions of time) for filing such individual's return for such taxable year, (B)no deduction is allowed under this section with respect to such contribution, and (C)such distribution is accompanied by the amount of net income attributable to such contribution.

In the case of such a distribution, for purposes of section 61, any net income described in subparagraph (C) shall be deemed to have been earned and receivable in the taxable year in which such contribution is made.

(4)

Additional tax on nonqualified distributions

(A)

In general

The tax imposed by this chapter on the account beneficiary for any taxable year in which there is a payment or distribution from a HOME Account of such beneficiary which is includible in gross income under this subsection shall be increased by 10 percent of the amount which is so includible. (B)

Exception for disability or death

Subparagraph (A) shall not apply if the payment or distribution is made after— (i)the account beneficiary becomes disabled (within the meaning of section 72(m)(7)) or (ii)dies. (C)

Exception for death only applies if qualified home distributions made from account

Subparagraph (B)(ii) shall apply to the beneficiary of a HOME Account only if, before the date of such beneficiary’s death, the aggregate qualified home distributions from the HOME Accounts of such beneficiary are not less than the aggregate deductible contributions to such Accounts. (f)

Tax treatment of accounts

(1)

Exemption from tax

A HOME Account shall be exempt from taxation under this subtitle unless such account has ceased to be a HOME Account by reason of paragraph (2). Notwithstanding the preceding sentence, HOME Accounts shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations). (2)

Loss of exemption of account where individual engages in prohibited transaction

(A)

In general

If, during any taxable year of the individual for whose benefit the HOME Account is established, that individual engages in any transaction prohibited by section 4975 with respect to the account, the account shall cease to be a HOME Account as of the first day of that taxable year (B)

Account treated as distributing all its assets

In any case in which any account ceases to be a HOME Account by reason of subparagraph (A) on the first day of any taxable year, subsection (e)(1) shall be applied as if there were a distribution on such first day in an amount equal to the fair market value (on such first day) of all assets in the account (on such first day). (3)

Effect of pledging account as security

If, during any taxable year, an individual for whose benefit a HOME Account is established uses the account or any portion thereof as security for a loan, the portion so used shall be treated as distributed to that individual. (4)

Rollover contributions

Subsection (e)(1) shall not apply to any amount paid or distributed out of a HOME Account to the individual for whose benefit the account is maintained if such amount is paid into another HOME Account for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution. (g)

No contributions after beneficiary attains age 59½

No deduction shall be allowed under this section with respect to any contribution for the benefit of an individual if such individual has attained age 59½ before the close of such individual's taxable year for which the contribution was made. (h)

Termination of account when beneficiary attains age 70½

As of the close of the calendar year in which the beneficiary of a HOME Account attains age 70½— (1)such Account shall cease to be a HOME Account, and (2)an amount equal to the fair market value of the assets in such Account on such date shall be includible in such beneficiary’s gross income for the taxable year which includes the last day of such calendar year. (i)

Treatment after death of account beneficiary

(1)

Treatment if designated beneficiary is spouse

If— (A)the account beneficiary's surviving spouse acquires such beneficiary's interest in a HOME Account by reason of being the designated beneficiary of such account at the death of the account beneficiary, and (B)such surviving spouse has not attained age 70½ as of the date of the death of the account beneficiary,

such HOME Account shall be treated as if the spouse were the account beneficiary.

(2)

Other cases

If, by reason of the death of the account beneficiary, any person acquires the account beneficiary's interest in a HOME Account in a case to which paragraph (1) does not apply— (A)such account shall cease to be a HOME Account as of the date of death, and (B)an amount equal to the fair market value of the assets in such account on such date shall be includible if such person is not the estate of such beneficiary, in such person's gross income for the taxable year which includes such date, or if such person is the estate of such beneficiary, in such beneficiary's gross income for the last taxable year of such beneficiary. (j)

Certain rules To apply

Rules similar to the following rules shall apply for purposes of this section: (1)Section 219(d)(2) (relating to no deduction for rollovers). (2)Section 219(f)(3) (relating to time when contributions deemed made). (3)Except as provided in section 106(d), section 219(f)(5) (relating to employer payments). (4)Section 219(f)(6) (relating to excess contributions treated as contribution made during subsequent year for which there is an unused limitation). (5)Paragraphs (4) and (5) of 408(d) (relating to excess contributions). (6)Section 408(d)(6) (relating to transfer of account incident to divorce). (7)Section 408(g) (relating to community property laws). (8)Section 408(h) (relating to custodial accounts). (k)

Reports

(1)

In general

The trustee of a HOME Account shall make such reports regarding such account to the Secretary and to the individual for whose benefit the account is maintained with respect to contributions, distributions, and such other matters as the Secretary may require under regulations. 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 those regulations. (2)

Notice of post-59½ tax provisions

In addition to the reports required under paragraph (1), the trustee of a HOME Account shall, not later than the first January 31 following the calendar year in which the account beneficiary attains age 59½, provide such beneficiary (in such manner as the Secretary shall prescribe) with a notice describing the application of— (A)subsection (e)(4) (relating to additional tax on nonqualified distributions), (B)subsection (h) (relating to termination of account when beneficiary attains age 70½), and (C)subsection (i) (relating to treatment after death of account beneficiary). (l)

Illegal alien

For purposes of this section, the term illegal alien means an alien who— (1)entered the United States without inspection or at any time or place other than that designated by the Secretary of Homeland Security; (2)was admitted as a nonimmigrant and, at the time the alien was taken into custody by the State or political subdivision, had failed to— (A)maintain the nonimmigrant status in which the alien was admitted or to which it was changed under section 248 of the Immigration and Nationality Act; or (B)comply with the conditions of the status described in subparagraph (A); (3)was admitted as an immigrant and subsequently failed to comply with the requirements of that status; or (4)failed to depart the United States as required under a voluntary departure agreement or under a final order of removal.

(b)

Deduction allowed in arriving at adjusted gross income

Subsection (a) of section 62 of such Code (defining adjusted gross income) is amended by inserting before the last sentence the following new paragraph:

(22)

HOME Account contributions

The deduction allowed by section 224 (relating to HOME Accounts).

(c)

Coordination with other limitations based on adjusted gross income

(1)Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), and 221(b)(2)(C)(i) of such Code are each amended by inserting 224, after 222,. (2)Clause (i) of section 222(b)(2)(C) of such Code is amended by inserting 224, after 199,. (d)

Tax on excess contributions

(1)

In general

Subsection (a) of section 4973 of such Code (relating to tax on excess contributions to certain tax-favored accounts and annuities) is amended by striking or at the end of paragraph (4), by inserting or at the end of paragraph (5), and by inserting after paragraph (5) the following new paragraph:

(6)a HOME Account (as defined in section 224(d)),

(2)

Excess contributions

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

(h)

Excess contributions to HOME accounts

For purposes of this section, in the case of HOME Accounts (as defined in section 224(d)), the term excess contributions means the sum of— (1)the excess (if any) of— (A)the amount contributed for the taxable year to the accounts (other than a rollover contribution), over (B)the amount allowable as a deduction under section 224 for such contributions, (2)the amount determined under this subsection for the preceding taxable year reduced by the sum of— (A)the distributions out of the account for the taxable year which were included in the gross income of the payee under section 224(e)(1), (B)the distributions out of the account for the taxable year to which the rules similar to the rules of section 408(d)(5) apply, and (C)the excess (if any) of the maximum amount allowable as a deduction under section 224 for the taxable year over the amount contributed (determined without regard to the rules referred to in section 219(g)(4)) to the accounts for the taxable year.

For purposes of this subsection, any contribution which is distributed from a HOME Account in a distribution to which rules similar to the rules of section 408(d)(4) apply shall be treated as an amount not contributed.

(e)

Tax on prohibited transactions

(1)Paragraph (1) of section 4975(e) of such Code (relating to prohibited transactions) is amended by redesignating subparagraphs (F) and (G) as subparagraphs (G) and (H), respectively, and by inserting after subparagraph (E) the following new subparagraph:

(F)a HOME Account described in section 224(d),

(2)Subsection (c) of section 4975 of such Code is amended by adding at the end the following new paragraph:

(7)

Special rule for HOME Accounts

An individual for whose benefit a HOME Account (as defined in section 224(d)) is established shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if, with respect to such transaction, the account ceases to be a HOME Account by reason of the application of section 224(f)(2)(A) to such account.

(f)

Failure To provide reports on HOME Accounts

Paragraph (2) of section 6693(a) of such Code is amended by redesignating subparagraphs (D) and (E) as subparagraphs (E) and (F), respectively, and by inserting after subparagraph (C) the following new subparagraph:

(D)section 224(k) (relating to HOME Accounts),

(g)

Clerical amendment

The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the item relating to section 224 and inserting the following:

Sec. 224. HOME Accounts.

Sec. 225. Cross reference.

(h)

Effective date

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