Home Ownership Incentive Act of 1985

Home Ownership Incentive Act of 1985 - Amends the Internal Revenue Code to allow an income tax deduction for contributions of cash, stocks, bonds, or other securities tradeable on an established exchange to a tax-exempt trust account established for the exclusive purpose of purchasing the taxpayer's first principal residence. Limits the maximum annual deduction to $1,000 with a maximum lifetime deduction of $10,000. Excludes distributions from such account from gross income if they are used exclusively for the purchase of a first principal residence. Imposes a ten percent surtax on distributions from an individual housing account which are not used for the purchase of a principal residence.

Requires the trustee of an individual housing account to report on the maintenance of the account. Imposes a penalty for failure to file required reports.