Sponsors (3)
Official title: To amend the Internal Revenue Code of 1986 to allow distributions from qualified tuition programs for qualified housing expenses, and for other purposes.
Introduced February 5, 2026 by Jimmy Patronis · Last progress February 5, 2026
The bill expands tax-free flexibility of 529 accounts to help beneficiaries become first-time homeowners, at the trade-off of reducing funds available for education for some families and causing modest revenue loss and administrative complexity.
Parents and families can use 529 account funds tax-free to cover qualifying first-time homebuyer costs for a designated beneficiary after 12/31/2026, increasing access to homeownership without federal tax on those distributions.
Designated beneficiaries gain greater flexibility in using education savings for major life needs (home purchase), which may help some households achieve financial stability and build equity.
The bill uses existing tax-code definitions (from sections 121 and 36(c)), which clarifies eligibility and aligns housing treatment with established standards, reducing compliance uncertainty.
Students and families who withdraw 529 funds for home purchases may have less money available for future education costs, increasing the risk of underfunded college and higher out-of-pocket education spending.
Federal tax revenue may modestly decline as more tax-advantaged 529 distributions are used for housing rather than education, which could increase budgetary costs or crowd out other priorities.
The 3-year ownership lookback rule could create planning complexity or inadvertent ineligibility for beneficiaries who recently sold a home, causing confusion and possibly denied tax-favored treatment.
Based on analysis of 2 sections of legislative text.
Allows tax-favored 529 plan distributions to cover first-time homebuyer qualified housing expenses (purchase, closing, mortgage) for distributions after 2026.
Allows families to use money from 529 college savings plans, without tax penalty, to buy a first home for a designated beneficiary who qualifies as a first-time homebuyer. "Qualified housing expenses" are defined to include purchase costs, closing costs, and mortgage payments; the rule applies to distributions made after December 31, 2026.