GOP senator proposes a new tax-free plan to save $250,000 on your first home
Lawmakers are pushing hard to make the dream of owning a home in America a reality again, and in the latest effort, Senator Rick Scott from Florida introduced a new bill that would allow buyers to accumulate up to $500,000 in tax-free savings. The senator pitched the bill last week that would allow banks to create specialized accounts called the "American Dream Accounts Act," which will empower first-time buyers to save for a down payment and shield their funds from the IRS.
Sen. Scott introduced the bill as a measure to bypass "economy-crushing" inflation and allow people to put money in a Roth IRA-style, untaxed savings account with qualified withdrawals for down payments. The American Dream Accounts will allow individuals under 35 years old to contribute up to $7,500 annually, and those over 35 years old will get a special "catch-up" allowance of $10,000 per year. While individuals will have a contribution cap of $250,000, couples will have more flexibility as joint buyers; they will be allowed a qualified distribution of up to $500,000.
Meanwhile, any withdrawals for an unqualified purpose will attract a 10% additional tax penalty, like a traditional 401(k) account. Furthermore, if a house is sold within the first three years of an American Dream Account-backed purchase, the amount will become taxed, barring a few exceptions. Lastly, any unused money, up to $100,000, will be transferred to a Roth-IRA or to a family member’s American Dream Account. "Today, so many Americans are facing that same struggle, especially young first-time buyers who view homeownership as a critical milestone to help them achieve their American Dream," the senator said in the official press release.
The proposal comes at a time when the upfront amount required for an average home has doubled since 2019, to $30,400 in the third quarter of 2025, as per the latest Down Payment Report from Realtor.com. This has led to a fall in consumer sentiment, with many, especially first-time buyers, feeling that they are priced out of the market. "This bill will help first-time buyers save faster, and their money will go farther to ease the financial barrier to homeownership for families," Senator Scott added in the release.
Realtor noted that several other states have created their own versions of such accounts, including Virginia, New Jersey, and Colorado. The three states have bipartisan support for the bills, each of which slightly differs on the cap for contributions, but all of them allow homebuyers to put money into a tax-advantaged account. Separately, the Senate recently voted to advance a bipartisan housing package on Tuesday that would ban large investors from purchasing single-family homes.
The 21st Century ROAD to Housing Act, which seeks to combine the House and Senate’s housing priorities with the Trump administration’s push for the ban, is expected to clear final passage as soon as Thursday. Another bipartisan effort is underway to reduce or eliminate capital gains taxes on home sales to encourage older homeowners to sell to younger Americans.
More on Market Realist:
Homebuyers are once again investing in the same thing that led to the 2008 financial crisis
Housing expert warns Americans about a price correction that is 'worse than 2008' crisis
Home prices have dropped for the first time in two years — what does it mean for sellers?
