First-Time Home Buyer Empowerment Act

This Act may be cited as the “First-Time Home Buyer Empowerment Act”.

(a) In general.— Section 529(c)(3) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

“(F) Special rule for certain distributions from long-term qualified tuition programs for first home purchases.—

(i) In general.— In the case of a distribution from an account of a designated beneficiary which has been maintained under 1 or more qualified tuition programs for the 15-year period ending on the date of such distribution, subparagraph (A) shall not apply to so much of the portion of such distribution which—

(I) does not exceed the aggregate amount contributed to the program (and earnings attributable thereto) before the 5-year period ending on the date of the distribution, and

(II) is used, within 60 days of such distribution, for the purchase of a principal residence of a first-time homebuyer who is the designated beneficiary with respect to such account.

(ii) Limitations.—

(I) In general.— This subparagraph shall apply only to a distribution from an account of the original designated beneficiary of the account, or any successor designated beneficiary who is of the same or a lower generation than the original designated beneficiary.

(II) Aggregate limitation.— This subparagraph shall not apply to any distribution described in clause (i) to the extent that the aggregate amount of such distributions with respect to the designated beneficiary for the taxable year and all prior taxable years exceeds an amount equal to $35,000, reduced by the aggregate amount of distributions to which subparagraph (E) applies with respect to such designated beneficiary for such taxable year and all prior taxable years.

(iii) Special rule where delay in acquisition.— If any distribution from a qualified tuition program of a designated beneficiary fails to meet the requirements of subparagraph (A) solely by reason of a delay or cancellation of the purchase or construction of the residence, the amount of the distribution may be contributed to a qualified tuition program or ABLE account of such beneficiary, as provided in subclauses (I) and (III), respectively, of subparagraph (C)(i), determined by substituting “120 days” for “60 days” in such subparagraph, except that—

(I) subparagraph (C)(iii) shall not be applied to such contribution, and

(II) such amount shall not be taken into account in determining whether subparagraph (C)(iii) applies to any other amount.

(iv) Recapture of tax benefit.—

(I) In general.— If subparagraph (A) does not apply to a distribution by reason of this subparagraph and a qualifying event occurs before the close of the 5-year period beginning on the date of the purchase of the principal residence with respect to which such distribution was used, the designated beneficiary’s tax for the taxable year in which such qualifying event occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for this subparagraph) would have been imposed with respect to such distribution, plus interest for the deferral period. The amount of any increase determined under the preceding sentence shall be reduced (but not below zero) by 20 percent for each full year occurring during the period beginning on the date of such purchase and ending on the date of such qualifying event.

(II) Qualifying event.— For purposes of this clause, the term qualifying event means, with respect to a distribution to which subparagraph (A) does not apply by reason of this subparagraph, the disposition of the principal residence which the designated beneficiary purchased using such distribution, or the cessation of use of such residence as the principal residence of the designated beneficiary (and, if married, such designated beneficiary’s spouse).

(III) Deferral period.— For purposes of this clause, the term deferral period means, with respect to a distribution to which subparagraph (A) does not apply by reason of this subparagraph, the period beginning with the taxable year in which (without regard to this subparagraph) the distribution would have been includible in gross income and ending with the taxable year in which the qualifying event described in subclause (I) occurs.

(IV) Exceptions.— Rules similar to the rules of subparagraphs (A), (B), (C), and (E) of section 36(f)(4) shall apply for purposes of this subparagraph.

(v) Definitions.— For purposes of this subparagraph, the terms purchase, principal residence, and first-time homebuyer have the meaning given such terms in section 36(c).”.

(b) Coordination with aggregate limitation on special rollovers to Roth IRAs.— Section 529(c)(3)(E)(ii)(II) of the Internal Revenue Code of 1986 is amended to read as follows:

“(II) Aggregate limitation.— This subparagraph shall not apply to any distribution described in clause (i) to the extent that the aggregate amount of such distributions with respect to the designated beneficiary for the taxable year and all prior taxable years exceeds an amount equal to $35,000, reduced by the aggregate amount of distributions to which subparagraph (F) applies with respect to such designated beneficiary for such taxable year and all prior taxable years.”.

(c) Effective date.— The amendments made by this section shall apply to distributions made in taxable years beginning after the date of the enactment of this Act.