A bill to amend the Internal Revenue Code of 1986 to provide for the establishment of, and the deduction of contributions to, housing savings accounts and, in order to compensate for the loss in Federal revenues by reason of such accounts, to restrict the deduction for home mortgage interest.

[AI summary unavailable — showing source text] Amends the Internal Revenue Code to allow an individual taxpayer an income tax deduction for cash contributions to a housing savings account established for the exclusive benefit of an individual who has never owned his or her principal residence. Limits: (1) the amount of the tax year deduction to the lesser of $2,000 or the earned income includible in the taxpayer's gross income for that year; and (2) total deductions to $20,000. Provides that no individual may be a beneficiary of more than one account. Permits the exclusion from gross income of payments and distributions from a housing savings account as long as such amounts are used exclusively in connection with the purchase of a principal residence for the eligible beneficiary or are distributions of excess contributions before the due date of the tax return. Exempts the account itself from taxation (except for the tax on unrelated business income) unless it ceases to be a proper housing savings account because the taxpayer either engages in prohibited transactions or acquires a principal residence. Imposes penalties in the form of additional tax when account funds or distributions are used for other than the legitimate housi…