Sponsors (3)
The bill makes it easier for families to tap tax-advantaged 529 savings to buy a first home, increasing short-term access to homeownership at the cost of greater risk of underfunding future college expenses, modest federal revenue loss, and some added administrative complexity.
Parents, families, and designated beneficiaries who are first-time homebuyers can use 529 plan funds tax-free to cover qualifying home purchase costs (including closing costs and mortgage payments) for purchases after 12/31/2026, making homeownership more financially accessible.
The bill adopts established tax-code definitions (from sections 121 and 36(c)) for the new homebuyer treatment, providing clearer rules and reducing compliance uncertainty for taxpayers and preparers.
Students and families saving for college may divert 529 savings to buy a home, increasing the risk that beneficiaries will be underfunded for future education costs.
Federal tax revenue could modestly decrease as more tax-advantaged 529 distributions are used for housing instead of education, potentially increasing budgetary costs or crowding out other priorities.
The 3-year ownership lookback requirement may create planning complexity and could render some beneficiaries inadvertently ineligible for tax-favored treatment, causing confusion and disputes.
Based on analysis of 2 sections of legislative text.
Allows tax-free 529 plan withdrawals to pay qualified housing expenses for a beneficiary who is a first-time homebuyer, with a 3-year lookback test.
Introduced February 5, 2026 by Jimmy Patronis · Last progress February 5, 2026
Allows tax-free withdrawals from 529 college savings plans to pay certain housing costs when the designated beneficiary is a first-time homebuyer. It defines covered housing costs to include the purchase of a principal residence as well as closing costs and mortgage payments, sets a 3-year lookback test to determine "first-time" status, and relies on existing tax-code definitions of "principal residence" and "purchase." The rule applies to distributions made after December 31, 2026.