SEC. 2. ESTABLISHMENT OF HOME OWNERSHIP MORTGAGE 
EXPENSE ACCOUNTS. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
additional itemized deductions for individuals) is amended 
by redesignating section 224 as section 225 and by insert-
ing after section 223 the following new section: 
‘‘SEC. 224. HOME OWNERSHIP MORTGAGE EXPENSE AC-
COUNTS. 
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual (other than an illegal alien), there shall be allowed 
as a deduction an amount equal to the aggregate amount 
paid in cash for the taxable year by such individual to 
a Home Ownership Mortgage Expense Account estab-
lished for the benefit of such individual. 
‘‘(b) MAXIMUM
AMOUNT
OF
DEDUCTION.—The 
amount allowable as a deduction under subsection (a) to 
any individual for any taxable year shall not exceed an 
amount equal to 50 percent of the limitation under section 
219(b)(1) for such year, determined without regard to 
subparagraphs (B) and (C) of section 219(b)(5). 
‘‘(c) REDUCTION
IN DEDUCTION BASED
ON AD-
JUSTED GROSS INCOME.— 
‘‘(1) IN GENERAL.—The dollar limitation other-
wise applicable under subsection (b) for a taxable 
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year shall be reduced (but not below zero) by the 
amount determined under paragraph (2). 
‘‘(2) AMOUNT OF REDUCTION.— 
‘‘(A) IN
GENERAL.—The amount deter-
mined under this paragraph with respect to 
such dollar limitation shall be the amount which 
bears the same ratio to such limitation as— 
‘‘(i) the excess of— 
‘‘(I) 
the 
taxpayer’s 
adjusted 
gross income for such taxable year, 
over 
‘‘(II) 
the 
applicable 
dollar 
amount for such taxable year under 
section 408A(c)(3) (relating to Roth 
IRA’s), bears to 
‘‘(ii) $10,000 ($20,000 in the case of 
a joint return for a taxable year). 
‘‘(B) NO REDUCTION BELOW $200 UNTIL 
COMPLETE PHASE-OUT.—Such dollar limitation 
shall not be reduced below $200 under para-
graph (1) unless (without regard to this sub-
paragraph) such limitation is reduced to zero. 
‘‘(C) ROUNDING.—Any amount determined 
under this paragraph which is not a multiple of 
$10 shall be rounded to the next lowest $10. 
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‘‘(3) ADJUSTED GROSS INCOME.—For purposes 
of this subsection, adjusted gross income shall be de-
termined— 
‘‘(A) without regard to this section and 
sections 911, 931, and 933, and 
‘‘(B) after application of sections 86, 135, 
137, 219, 221, 222, and 469. 
‘‘(d) HOME OWNERSHIP MORTGAGE EXPENSE AC-
COUNT.—For purposes of this section, the terms ‘Home 
Ownership Mortgage Expense Account’ and ‘Home Ac-
count’ mean a trust created or organized in the United 
States for the exclusive benefit of an individual, but only 
if the written governing instrument creating the trust 
meets the following requirements: 
‘‘(1) No contribution will be accepted unless it 
is in cash. 
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)) or another person who demonstrates to 
the satisfaction of the Secretary that the manner in 
which that person will administer the trust will be 
consistent with the requirements of this section. 
‘‘(3) No part of the trust assets will be invested 
in any collectible (as defined in section 408(m)). 
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‘‘(4) The assets of the trust will not be commin-
gled with other property except in a common trust 
fund or common investment fund. 
‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.— 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount distributed out 
of a HOME Account shall be included in gross in-
come by the distributee unless such amount is part 
of a qualified home distribution. 
‘‘(2) QUALIFIED
HOME
DISTRIBUTION.—For 
purposes of this subsection— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the term ‘qualified home dis-
tribution’ means any payment or distribution 
received by an individual to the extent such 
payment or distribution is used by the indi-
vidual within a reasonable period to pay— 
‘‘(i) qualified acquisition costs (as de-
fined in section 72(t)(8)(C)) with respect 
to the principal residence (within the 
meaning of section 121) of such individual, 
or 
‘‘(ii) costs to remodel such residence. 
‘‘(B) LIMITATIONS.— 
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‘‘(i) HALF
OF
REMODELING
PAY-
MENTS INCLUDED IN INCOME.—50 percent 
of any qualified home distribution de-
scribed in subparagraph (A)(ii) shall be in-
cluded in gross income by the distributee. 
‘‘(ii) ACQUISITION INDEBTEDNESS ON 
PRINCIPAL
RESIDENCE
MUST
BE
FIXED 
RATE
AND
SELF-AMORTIZING.—Subpara-
graph (A) shall apply to a distribution with 
respect to a principal residence only if, 
with respect to all acquisition indebtedness 
(as defined in section 163(h)(3)(B)) se-
cured by such residence— 
‘‘(I) the interest rate on the in-
debtedness is the same throughout the 
term of the indebtedness, and 
‘‘(II) substantially level amortiza-
tion of such indebtedness (with pay-
ments not less frequently than quar-
terly) is required over the term of the 
indebtedness. 
‘‘(iii) DEBT PAYMENTS MAY NOT BE 
MADE.—In no event shall the term ‘quali-
fied home distribution’ include payment of 
principal or interest on any indebtedness. 
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‘‘(3) CONTRIBUTIONS RETURNED BEFORE DUE 
DATE OF RETURN.—Paragraph (1) shall not apply 
to the distribution of any contribution paid during a 
taxable year to a HOME Account if— 
‘‘(A) such distribution is received on or be-
fore the day prescribed by law (including exten-
sions of time) for filing such individual’s return 
for such taxable year, 
‘‘(B) no deduction is allowed under this 
section with respect to such contribution, and 
‘‘(C) such distribution is accompanied by 
the amount of net income attributable to such 
contribution. 
In the case of such a distribution, for purposes of 
section 61, any net income described in subpara-
graph (C) shall be deemed to have been earned and 
receivable in the taxable year in which such con-
tribution is made. 
‘‘(4) ADDITIONAL TAX ON NONQUALIFIED DIS-
TRIBUTIONS.— 
‘‘(A) IN GENERAL.—The tax imposed by 
this chapter on the account beneficiary for any 
taxable year in which there is a payment or dis-
tribution from a HOME Account of such bene-
ficiary which is includible in gross income under 
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this subsection shall be increased by 10 percent 
of the amount which is so includible. 
‘‘(B) EXCEPTION
FOR
DISABILITY
OR 
DEATH.—Subparagraph (A) shall not apply if 
the payment or distribution is made after— 
‘‘(i) the account beneficiary becomes 
disabled (within the meaning of section 
72(m)(7)) or 
‘‘(ii) dies. 
‘‘(C) EXCEPTION
FOR
DEATH
ONLY
AP-
PLIES
IF
QUALIFIED
HOME
DISTRIBUTIONS 
MADE FROM ACCOUNT.—Subparagraph (B)(ii) 
shall apply to the beneficiary of a HOME Ac-
count only if, before the date of such bene-
ficiary’s death, the aggregate qualified home 
distributions from the HOME Accounts of such 
beneficiary are not less than the aggregate de-
ductible contributions to such Accounts. 
‘‘(f) TAX TREATMENT OF ACCOUNTS.— 
‘‘(1) EXEMPTION FROM TAX.—A HOME Ac-
count shall be exempt from taxation under this sub-
title unless such account has ceased to be a HOME 
Account by reason of paragraph (2). Notwith-
standing the preceding sentence, HOME Accounts 
shall be subject to the taxes imposed by section 511 
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(relating to imposition of tax on unrelated business 
income of charitable, etc. organizations). 
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE 
INDIVIDUAL
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.— 
‘‘(A) IN GENERAL.—If, during any taxable 
year of the individual for whose benefit the 
HOME Account is established, that individual 
engages in any transaction prohibited by section 
4975 with respect to the account, the account 
shall cease to be a HOME Account as of the 
first day of that taxable year 
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING 
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a HOME Account by reason 
of subparagraph (A) on the first day of any 
taxable year, subsection (e)(1) shall be applied 
as if there were a distribution on such first day 
in an amount equal to the fair market value (on 
such first day) of all assets in the account (on 
such first day). 
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, an individual for 
whose benefit a HOME Account is established uses 
the account or any portion thereof as security for a 
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loan, the portion so used shall be treated as distrib-
uted to that individual. 
‘‘(4) ROLLOVER
CONTRIBUTIONS.—Subsection 
(e)(1) shall not apply to any amount paid or distrib-
uted out of a HOME Account to the individual for 
whose benefit the account is maintained if such 
amount is paid into another HOME Account for the 
benefit of such individual not later than the 60th 
day after the day on which he receives the payment 
or distribution. 
‘‘(g) NO CONTRIBUTIONS AFTER BENEFICIARY AT-
TAINS AGE 591⁄2.—No deduction shall be allowed under 
this section with respect to any contribution for the benefit 
of an individual if such individual has attained age 591⁄2 
before the close of such individual’s taxable year for which 
the contribution was made. 
‘‘(h) TERMINATION
OF ACCOUNT WHEN BENE-
FICIARY ATTAINS AGE 701⁄2.—As of the close of the cal-
endar year in which the beneficiary of a HOME Account 
attains age 701⁄2— 
‘‘(1) such Account shall cease to be a HOME 
Account, and 
‘‘(2) an amount equal to the fair market value 
of the assets in such Account on such date shall be 
includible in such beneficiary’s gross income for the 
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taxable year which includes the last day of such cal-
endar year. 
‘‘(i) TREATMENT AFTER DEATH OF ACCOUNT BENE-
FICIARY.— 
‘‘(1) TREATMENT IF DESIGNATED BENEFICIARY 
IS SPOUSE.—If— 
‘‘(A) the account beneficiary’s surviving 
spouse acquires such beneficiary’s interest in a 
HOME Account by reason of being the des-
ignated beneficiary of such account at the death 
of the account beneficiary, and 
‘‘(B) such surviving spouse has not at-
tained age 701⁄2 as of the date of the death of 
the account beneficiary, 
such HOME Account shall be treated as if the 
spouse were the account beneficiary. 
‘‘(2) OTHER CASES.—If, by reason of the death 
of the account beneficiary, any person acquires the 
account beneficiary’s interest in a HOME Account 
in a case to which paragraph (1) does not apply— 
‘‘(A) such account shall cease to be a 
HOME Account as of the date of death, and 
‘‘(B) an amount equal to the fair market 
value of the assets in such account on such date 
shall be includible if such person is not the es-
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tate of such beneficiary, in such person’s gross 
income for the taxable year which includes such 
date, or if such person is the estate of such 
beneficiary, in such beneficiary’s gross income 
for the last taxable year of such beneficiary. 
‘‘(j) CERTAIN RULES TO APPLY.—Rules similar to 
the following rules shall apply for purposes of this section: 
‘‘(1) Section 219(d)(2) (relating to no deduc-
tion for rollovers). 
‘‘(2) Section 219(f)(3) (relating to time when 
contributions deemed made). 
‘‘(3) Except as provided in section 106(d), sec-
tion 219(f)(5) (relating to employer payments). 
‘‘(4) Section 219(f)(6) (relating to excess con-
tributions treated as contribution made during sub-
sequent year for which there is an unused limita-
tion). 
‘‘(5) Paragraphs (4) and (5) of 408(d) (relating 
to excess contributions). 
‘‘(6) Section 408(d)(6) (relating to transfer of 
account incident to divorce). 
‘‘(7) Section 408(g) (relating to community 
property laws). 
‘‘(8) Section 408(h) (relating to custodial ac-
counts). 
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‘‘(k) REPORTS.— 
‘‘(1) IN GENERAL.—The trustee of a HOME 
Account shall make such reports regarding such ac-
count to the Secretary and to the individual for 
whose benefit the account is maintained with respect 
to contributions, distributions, and such other mat-
ters as the Secretary may require under regulations. 
The reports required by this subsection shall be filed 
at such time and in such manner and furnished to 
such individuals at such time and in such manner as 
may be required by those regulations. 
‘‘(2) NOTICE OF POST-591⁄2 TAX PROVISIONS.— 
In addition to the reports required under paragraph 
(1), the trustee of a HOME Account shall, not later 
than the first January 31 following the calendar 
year in which the account beneficiary attains age 
591⁄2, provide such beneficiary (in such manner as 
the Secretary shall prescribe) with a notice describ-
ing the application of— 
‘‘(A) subsection (e)(4) (relating to addi-
tional tax on nonqualified distributions), 
‘‘(B) subsection (h) (relating to termi-
nation of account when beneficiary attains age 
701⁄2), and 
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