American Dream Act
- Sponsor
- Rep. McGuire, John J. [R-VA-5]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jan 14, 2026
Bottom line
The bill incentivizes older homeowners to sell their properties to first-time homebuyers by offering a capital gains tax exclusion, aiming to increase housing supply for new buyers while reducing federal tax revenue.
What it actually does
This bill amends the Internal Revenue Code of 1986 to create a new temporary tax exclusion for individuals aged 65 or older who sell real property to a first-time homebuyer. The exclusion applies to capital gains from such sales, provided the sale price does not exceed $500,000 and the buyer attests to their first-time homebuyer status and intent to use the property as a principal residence. This new exclusion, effective for sales after December 31, 2026, will sunset after December 31, 2031.
Proponents argue
Supporters argue this bill will help address critical housing affordability and supply issues by encouraging older individuals to downsize or relocate without incurring capital gains tax, thereby freeing up homes for younger, first-time buyers struggling to enter the market. It provides a direct financial incentive to facilitate intergenerational housing transfers and stimulate housing turnover.
Opponents contend
Critics might contend that this tax exclusion primarily benefits wealthier seniors who have significant capital gains, rather than broadly addressing housing affordability for all. They may also argue it could inadvertently inflate housing prices further in the eligible price range or that the $500,000 cap is either too high or too low to be effective across diverse housing markets.
The bill is short and clearly written, making it accessible for a quick read and easy to understand its core provisions.
Section 2, amending Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 by inserting new section 121A.
Capital Gains Exclusion for Seniors Selling to First-Time Homebuyers
This provision establishes a new tax exclusion allowing individuals aged 65 or older to avoid paying capital gains tax on the sale of real property. To qualify, the sale must be to a first-time homebuyer who will use it as their principal residence, the sale price must not exceed $500,000, and the buyer must provide a sworn statement confirming their eligibility and intent. This exclusion is an alternative to the existing Section 121 principal residence exclusion.
Supporters argue
Supporters argue this exclusion incentivizes older homeowners to sell their homes, particularly larger ones, freeing up inventory for younger families and first-time buyers who are struggling with limited supply and high prices. It also provides a financial benefit to seniors, aiding their retirement planning or relocation by reducing their tax burden.
Critics contend
Critics might argue that this exclusion could disproportionately benefit wealthier seniors with significant capital gains, rather than being a targeted solution for broad housing affordability. They may also contend that the $500,000 price cap might not be effective in all housing markets, or that it could inadvertently push up prices for homes just under the cap.
Tradeoffs
The provision balances the goal of increasing housing supply for first-time buyers with the cost of federal tax revenue loss. It also creates a specific incentive for a demographic group (seniors) which may be seen as equitable for those looking to downsize, but potentially inequitable compared to other homeowners.
Section 2, new section 121A(b) and 121A(c).
Defining Eligibility and Preventing Double Dipping
This provision clearly defines a 'first-time homebuyer' as any individual (or their spouse) who has not previously held a present ownership interest in a principal residence. It also clarifies that the new exclusion under Section 121A cannot be used in conjunction with the existing Section 121 exclusion for gain from the sale of a principal residence, meaning taxpayers must choose one or the other if both apply to a sale.
Section 2, new section 121A(d).
Sunset Clause for the Exclusion
This provision stipulates that the new tax exclusion will not apply to any sales made after December 31, 2031. This means the benefit is temporary, set to expire approximately five years after its effective date of December 31, 2026, unless Congress acts to extend or make it permanent.
Requires the closing documents for a qualifying sale to include a statement by the buyer, made under penalty of perjury, affirming they are a first-time homebuyer and purchasing the property as their principal residence.
Section 2, new section 121A(a)(4).
Why it matters:This is standard legislative practice to ensure compliance and deter fraud for tax benefits. It places the burden of proof and legal responsibility directly on the buyer to attest to their eligibility.
Case for: Supporters argue this requirement is essential for preventing fraud and ensuring that the tax benefit is only applied to legitimate sales to first-time homebuyers, thereby protecting the integrity and fiscal soundness of the program.
Case against: Critics might argue that adding such a requirement could slightly complicate closing processes or add a minor administrative burden, though this is generally considered a necessary safeguard for tax incentives.
Estimated impact: Ensures the integrity of the program, preventing an unknown amount of fraudulent claims and ensuring the benefit reaches its intended recipients.