H.R. 6542: First Home Savings Opportunity Act of 2025

The proposed legislation, known as the First Home Savings Opportunity Act of 2025, aims to create specific savings accounts designed to assist first-time homebuyers in saving for down payments on their future homes. Here’s a breakdown of what the bill entails:

Down Payment Savings Account

The bill introduces a new type of account called a "down payment savings account," which is a trust organized in the United States specifically for saving towards qualified down payment expenses for a principal residence. The account must have a few requirements:

• The account can only accept contributions made by the beneficiary (the person using the account).
• The beneficiary must not have owned a principal residence within the last three years.
• Contributions can only be in cash and not exceed specific limits.
• The trustee managing the account must be a bank or an approved entity.

Qualified Expenses

Funds from the account can only be used for "qualified down payment expenses," which include the down payment and closing costs for purchasing a first home. A first-time homebuyer is defined according to existing tax codes.

Tax Deductions for Contributions

Individuals can receive a tax deduction for contributions made to their down payment savings account. The deduction is limited to the lesser of:

• The individual’s earned income for the year.
• $10,000 (or $20,000 for joint filers).

This deduction is also subject to phaseout for taxpayers with modified adjusted gross incomes exceeding specific thresholds.

Distribution Rules

Distributions from the account that are used exclusively for qualified expenses are not subject to income tax. However, if any amounts are not used for these expenses, they must be included in gross income and incur an additional 20% tax penalty. There are exceptions for distributions made after the beneficiary's death or if the beneficiary becomes disabled.

Excess contributions can be returned under certain conditions without incurring negative tax consequences.

Reporting Requirements

The trustee of each down payment savings account is required to report contributions, distributions, and other relevant details to the government and account beneficiaries as mandated by the Secretary of the Treasury.

Deduction for Non-Itemizers

The legislation allows non-itemizers to benefit from the deduction for contributions to down payment savings accounts, which previously was not available to them.

Prohibited Transactions and Penalties

Provisions exist to exempt certain transactions involving the down payment savings accounts from penalties that typically apply to prohibited transactions. A penalty for failing to file required reports for these accounts is also included in the bill.

Effective Date

The changes proposed in the bill would take effect for taxable years beginning after December 31, 2025.

Relevant Companies

• DFS - Discover Financial Services: As a bank, Discover may be involved in managing down payment savings accounts and could see an increase in new accounts opened under this legislation.
• JPM - JPMorgan Chase & Co.: A major bank that may handle many of these savings accounts, benefiting from fees and increased customer deposits.
• WFC - Wells Fargo & Company: As a bank that also offers home loans, the introduction of these accounts might lead to an influx of clients seeking mortgages, thus potentially increasing their business.