The bill lets first-time buyers tap 529 savings tax-free for a modest down payment and protects savers from timing-related tax traps, but it reduces education savings, is capped at $35,000, and creates a five-year recapture risk that can leave families facing taxes and interest.
First-time homebuyers: can withdraw up to $35,000 tax-free from a long-held 529 account toward a first home purchase, increasing ability to afford a down payment.
Taxpayers with 529 or ABLE accounts facing a delayed home closing: may recontribute distributed funds to those accounts to preserve tax-favored status and avoid an unintended taxable distribution.
Beneficiaries and families using 529 funds for a home purchase: will have less money available for education, potentially increasing future education costs or student borrowing.
Beneficiaries who sell or stop using the home as their principal residence within five years: may face recapture of the tax-free treatment (additional tax plus interest), creating a material repayment risk.
Taxpayers and families balancing goals: the $35,000 lifetime cap (and coordination with Roth rollover limits) restricts the benefit size and can complicate tax planning for households saving for both education and a home.
Based on analysis of 2 sections of legislative text.
Permits certain long‑held 529 plan funds to be used tax‑free (up to $35,000 lifetime) for a beneficiary's first home purchase, with recontribution and recapture rules.
Introduced February 10, 2026 by Tracey Mann · Last progress February 10, 2026
Creates a new tax exception allowing certain long‑held 529 college savings accounts to pay for a beneficiary's first home purchase without triggering the usual penalty for nonqualified distributions. The exemption applies only to accounts maintained at least 15 years, to amounts contributed more than 5 years before the distribution (plus earnings), is limited to $35,000 lifetime per beneficiary, includes recontribution rules if closing is delayed, and imposes a phased recapture tax if the property stops being the principal residence within five years.