H.R. 7422: Next-Generation Equity Savings Tool Act

This bill, known as the Next-Generation Equity Savings Tool Act or NEST Act, aims to create a new type of savings account specifically for first-time homebuyers in the United States. Here is a breakdown of what the bill proposes:

Establishment of First-Time Homebuyer Savings Accounts

The bill allows individuals to establish a First-Time Homebuyer Savings Account (FTHBSA). This account is designed to help people save for the costs associated with purchasing their first home. The account will only be available if certain criteria are met:

• The individual has not owned a principal residence in the last three years.
• The account must be set up as a trust and only for qualified home ownership expenses.
• The contributions to the account are made in cash.

Tax Deductions and Contributions

Individuals who contribute to their FTHBSA can deduct the amount contributed from their taxable income for the year. There are limits on how much can be contributed:

• The total contributions cannot exceed a certain state-determined threshold, which is 20% of the median home sale price in that state.
• Contributions can come from individuals and may include employer contributions, which would also be excluded from taxable income.

Qualified Expenses

Funds in the FTHBSA can be used for a variety of expenses associated with buying a home, including:

• Down payments
• Construction costs
• Closing costs

Qualified expenses are limited to those pertaining to the primary residence of the account holder.

Tax Treatment of the Accounts

The FTHBSA is structured to be tax-exempt as long as it fulfills the requirements of a first-time homebuyer savings account. If the account holder uses funds for non-qualified expenses, those funds will be subject to income tax, along with an additional penalty tax on the amount used improperly.

Account Contributions and Rollovers

The bill sets forth guidelines for managing contributions to the account:

• If an account holder withdraws excess contributions, they can avoid penalties if those amounts are returned before filing their taxes for the year.
• Any amount transferred to another FTHBSA may qualify as a rollover, allowing for tax-free movement of funds between accounts.

State Adjustment and Reporting

The bill establishes that the state threshold for contributions will be updated regularly based on the current median home prices, ensuring that the savings goals remain achievable. Additionally, trustees managing these accounts will have reporting obligations to ensure compliance with tax regulations.

Effective Date

The provisions of the NEST Act will take effect for taxable years beginning after December 31, 2025.

Relevant Companies

• KB Home (KBH) - As a homebuilding company, KB Home could be positively impacted by an increase in first-time homebuyer activity due to expanded savings options.
• D.R. Horton (DHI) - Another major homebuilder, D.R. Horton may see increased demand for homes as more individuals can save for down payments through the benefits offered by this bill.
• PulteGroup (PHM) - Similar to KB Home and D.R. Horton, PulteGroup is positioned to benefit from enhanced first-time homebuyer savings, potentially boosting its sales volume.