November 29th, 2007

tzb

Tax policy idea: "Home Equity Savings Account"

I was just thinking about 529s and Roth IRAs and I was wondering why there is not similar tool for saving up for home ownership. Right now, it seems all the incentives are to pay as little down as possible and take on as much debt as possible, since mortgage interest is untaxed.

I think the tax code should favor home ownership, but shouldn’t favor (as strongly) indebtedness. So how about a program where individuals can invest post-tax dollars in an account that grows tax-free (just like a 529, HCSA, or Roth IRA). Then, when the individual wants to buy a house, a withdrawal can be made without penalty. Taken a step further, after purchasing the house, money can be stored and used for home improvements or other related expenses.

Update Err... that's 529, not 509.