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.

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 housing purposes for which the account was established.

Requires that the trustee of a housing savings account file reports with the Secretary of the Treasury and with the account's beneficiary on the maintenance of the account.

Extends the deduction for contributions to a housing savings account to taxpayers who do not otherwise itemize deductions.

Imposes a six percent excise tax on excess contributions to a housing savings account.

Provides that contributions to a housing savings account shall not be subject to gift tax.

Imposes a five percent excise tax on amounts connected with any prohibited transaction with respect to a housing savings account.

Imposes a penalty for failure to file reports required with respect to a housing savings account.

Excludes from the gross income of an individual distributions from a housing savings account used in connection with the purchase of a principal residence for that individual.

Revises the definition of "qualified residence interest" for purposes of the income tax deduction for personal interest to distinguish between acquisition indebtedness and home equity indebtedness. Limits to $500,000 and $75,000 respectively the amount of indebtedness on which interest is deductible. Provides that for purposes of this deduction a boat or a mobile home used on a transient basis shall not be treated as a qualified second residence of the taxpayer.