NEST Act

Bill Number

H.R. 7422

Origin Chamber

House

Congress

119th Congress, Session 2

Policy Area

Taxation

Status

Introduced

Latest Action

2026-02-09: Referred to the House Committee on Ways and Means.

Last Updated

2026-02-13T18:14:01Z

AI-Generated Summary

Purpose

The NEST Act aims to encourage first-time homebuyers to save for purchasing a primary residence by creating tax-advantaged savings accounts. It provides deductions and exclusions for contributions and qualified withdrawals, similar to health savings accounts (HSAs) or education savings plans, to make homeownership more accessible, especially for younger or lower-income individuals.

Key Provisions

• Account Establishment and Eligibility:
• Individuals aged 18 or older who have not owned a principal residence in the past 3 years can open a "first-time homebuyer savings account" as a trust with a bank or approved trustee.
• Contributions must be in cash and are limited annually (adjusted based on IRS rules similar to other savings accounts) and over a lifetime to 20% of the median home sale price in the state where the account is established (e.g., a state-specific cap like $60,000 if the median home price is $300,000).
• No investments in life insurance; assets cannot be mixed with non-account property except in common funds.

• Tax Treatment of Contributions:
• Individuals get an "above-the-line" deduction (meaning it reduces adjusted gross income without needing itemized deductions) for cash contributions made to their account.
• Employer contributions to an employee's account are excluded from the employee's gross income and from employment taxes (e.g., Social Security, Medicare, unemployment taxes).
• Employers must report these contributions on W-2 forms.

• Tax Treatment of Account Growth and Withdrawals:
• Earnings in the account grow tax-free.
• Withdrawals used for "qualified home ownership expenses" (e.g., down payments, closing costs, or construction of a primary residence) are tax-free.
• Non-qualified withdrawals are included in taxable income, plus a 20% penalty tax (waived in cases of death).
• Accounts automatically close 60 days after the beneficiary buys a home, with the balance treated as a distribution.
• Rollover contributions between accounts are allowed within 60 days, but limited to once per year.

• Penalties and Rules:
• Excess contributions (beyond limits) incur a 6% excise tax annually until corrected; returns of excess before tax filing deadlines avoid income inclusion but include attributable earnings as income.
• Prohibited transactions (e.g., unauthorized investments) trigger taxes, but buying a home is exempt.
• Trustees must report contributions, distributions, and other details to the IRS and account holders.
• Adjustments to state lifetime limits start after 2025, based on median home prices, but limits can only increase, not decrease.

• Effective Date: Applies to tax years beginning after December 31, 2025.

Significant Changes to Existing Law

• Adds a new Section 223A to the Internal Revenue Code (IRC), creating a dedicated framework for these accounts, modeled on rules for HSAs (Section 223), IRAs (Section 408), and other tax-favored savings vehicles.
• Introduces Section 139J to exclude employer contributions from income and payroll taxes, with conforming amendments to employment tax sections (e.g., 3121, 3231, 3306, 3401).
• Expands excise tax rules under Section 4973 for excess contributions and Section 4975 for prohibited transactions to cover these accounts.
• Requires W-2 reporting of employer contributions and adds reporting penalties under Section 6693.
• Coordinates with existing first-time homebuyer credits (e.g., Section 36) to prevent double-dipping benefits.

Potential Impacts

• On Citizens: First-time homebuyers may save more effectively for homes due to tax incentives, potentially increasing homeownership rates, especially in high-cost states. However, non-qualified withdrawals could lead to unexpected tax burdens. Lower- and middle-income individuals benefit most from the deduction and exclusions.
• On Government Agencies: The IRS will need to administer new reporting, audits, and adjustments (in consultation with the Department of Housing and Urban Development for home price data), increasing administrative workload. Reduced tax revenue from deductions and exclusions could affect federal budgets.
• On International Relations: Minimal direct impact, though expatriates (covered under IRC Section 877A) may face deferred taxation on account distributions upon renouncing U.S. citizenship.

Main Stakeholders Affected

• First-Time Homebuyers: Primary beneficiaries (ages 18+ without recent home ownership), who gain tax savings but face limits and penalties.
• Employers: Can contribute to employees' accounts tax-free, potentially using it as a retention tool, but must handle reporting.
• Financial Institutions (Banks/Trustees): Eligible to serve as account custodians, with new compliance and reporting duties.
• IRS and Treasury Department: Responsible for enforcement, adjustments, and guidance.
• State Governments: Indirectly affected via state-specific contribution caps tied to local housing markets.

Notable Legal, Constitutional, or Political Implications

• Legal: Builds on established tax code precedents for savings incentives, ensuring consistency with anti-abuse rules (e.g., penalties for excess contributions). No conflicts with double taxation treaties apparent, but requires clear IRS regulations to avoid disputes over "qualified expenses."
• Constitutional: Aligns with Congress's taxing and spending powers under Article I; promotes equal protection by targeting first-time buyers without overt discrimination.
• Political: Could appeal across parties by addressing housing affordability amid rising prices, but may face debate over lost revenue (estimated in billions over time) and whether it sufficiently aids underserved groups. Introduces state-varied limits, potentially creating equity issues between high- and low-cost areas.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Cammack, Kat [R-FL-3]

Cosponsors (1)

Del. Moylan, James C. [R-GU-At Large]

Recent Actions

• 2026-02-09: Referred to the House Committee on Ways and Means.
• 2026-02-09: Introduced in House
• 2026-02-09: Introduced in House

Bill Versions

• Next-Generation Equity Savings Tool Act — issued 2026-02-09 — PDF (19 pages)