To amend the Internal Revenue Code of 1986 to provide for the establishment of, and the deduction of contributions to, first home savings accounts, and for other purposes.

Amends the Internal Revenue Code to allow an individual taxpayer an income tax deduction of up to $2,000 per year for cash contributions to a first home savings account established for the exclusive benefit of an individual who has never owned his or her principal residence. Limits total deductions to $20,000. Permits an exclusion from gross income of account payments and distributions used exclusively in connection with the purchase of a principal residence for the eligible beneficiary.

Exempts an account from taxation (except for the tax on unrelated business income of a charitable organization) unless the beneficiary either engages in prohibited transactions or acquires a principal residence.

Imposes a ten percent surtax on distributions used for other than the purposes for which the account was established.

Requires the account trustee to report to the Secretary of the Treasury and to the account's beneficiary concerning the account. Imposes a penalty for failure to report.

Allows taxpayers who do not otherwise itemize deductions to deduct for contributions to a first home savings account.

Exempts account contributions from the gift tax.

Imposes penalty taxes in connection with excess contributions or prohibited transactions associated with an account.

Excludes from the gross income of an individual any distributions from an individual retirement account or certain other tax-deferred plans if the distribution is used in connection with the purchase of the first principal residence for the individual. Limits the exclusion to the excess of $20,000 over the individual's aggregate contributions to a first home savings account.