Neighborhood Homes Investment Act
- Sponsor
- Rep. Kelly, Mike [R-PA-16]
- Committees
- Ways and Means Committee (primary)
- Last action
- Apr 10, 2025
Bottom line
This bill establishes a new federal tax credit designed to stimulate investment in affordable home construction and rehabilitation in economically distressed urban and rural areas by closing the "value gap" between development costs and sale prices.
What it actually does
This bill amends the Internal Revenue Code to establish a new tax credit, the "Neighborhood Homes Credit," which incentivizes the construction or substantial rehabilitation of homes in distressed urban and rural communities. The credit is designed to bridge the "value gap" between development costs and the sale price of homes, making them affordable for low- and moderate-income homebuyers or assisting existing homeowners with rehabilitation costs.
Proponents argue
Proponents argue this bill directly addresses the critical housing shortage, particularly in underserved communities, by making development financially viable where it currently is not. They contend it will foster homeownership, a key driver of household wealth and neighborhood stability, and revitalize distressed areas by attracting private investment and improving housing stock.
Opponents contend
No specific opposition is explicitly stated in the provided bill text. Potential arguments against such a credit might include concerns about its overall cost to federal taxpayers, the potential for administrative complexity for state agencies and developers, or whether it is the most efficient mechanism to achieve housing affordability compared to direct subsidies.
The bill is moderately complex due to its technical tax language and detailed definitions, requiring careful reading beyond a quick scan to fully grasp its implications.
Section 1
Short Title
This section designates the Act as the "Neighborhood Homes Investment Act." This provides a concise and official name for the legislation, making it easier to reference and discuss in legislative and public discourse.
Supporters argue
Designating a short title is standard legislative practice that facilitates clear communication and identification of the bill's purpose.
Critics contend
No specific opposition is typically raised against this provision because it is a procedural element of legislative drafting.
Tradeoffs
None.
Section 2
Congressional Findings and Sense
This section outlines Congress's findings regarding the national housing shortage, its disproportionate impact on low-income communities, and the importance of homeownership for wealth and stability. It identifies the "value gap" as a barrier to housing construction in distressed areas. It also expresses a sense that the new credit should revitalize communities, minimize burdens on small businesses, and align with the Fair Housing Act.
Section 3, new IRC Section 42A(a)
Establishment of Neighborhood Homes Credit
This provision establishes a new general business tax credit for taxpayers who sell qualified residences in an "affordable sale." The credit amount is the lesser of: 1) the "value gap" (reasonable development costs minus sale price, potentially up to 120% of the gap), 2) 40% of eligible development costs, or 3) 32% of the national median sale price for new homes. This credit is designed to make development in distressed areas financially viable.
Section 3, new IRC Section 42A(b)
Definition of Development Costs
This section defines what constitutes "reasonable development costs" (acquisition, construction, rehabilitation, demolition, environmental remediation, as deemed necessary by the agency) and "eligible development costs" (reasonable costs with a cap on land/building acquisition at 75% of total costs). It also specifies that construction and rehabilitation costs only qualify if incurred after the credit allocation, with a 3-year lookback for land and building acquisition costs.
Section 3, new IRC Section 42A(c)
Definition of Qualified Residence and Census Tracts
This section defines a "qualified residence" as a permanent residential unit (up to 4 units, condominium, or co-op) that is part of an allocated project and located in a "qualified census tract." It details five types of qualified census tracts based on criteria such as median family income, poverty rates, median home values, location in disaster areas, or designation by the neighborhood homes credit agency due to a shortage of affordable owner-occupied homes.
Section 3, new IRC Section 42A(d)
Definition of Affordable Sale and Qualified Homeowner
This section defines an "affordable sale" as a sale to a "qualified homeowner" at a price not exceeding four times the median family income for the applicable area (with higher limits for multi-unit homes). A "qualified homeowner" is an individual using the residence as their principal home, whose family income is 140% or less of the area's median family income at the time of contract.
Section 3, new IRC Section 42A(e)
State Allocation of Credit Amounts
This section limits the credit allowed based on allocations made by state "neighborhood homes credit agencies" to "qualified projects." Each state receives an annual credit ceiling, calculated as the greater of $9 per capita (with a $12 million minimum) plus any recaptured unused amounts. Unused allocations can be carried forward for up to three years. Projects must complete affordable sales within five years of receiving an allocation.
Section 3, new IRC Section 42A(g)
Repayment Requirement for Early Sale
If a qualified residence is sold within five years of its initial affordable sale, the seller must repay a portion of the gain to the relevant neighborhood homes credit agency. The repayment amount is 50% of the gain, reduced by 10 percentage points for each year completed in the five-year period. Agencies are required to place a lien on properties to ensure potential repayment and can waive repayment in cases of hardship (e.g., divorce, disability, illness). Repaid funds must be used for other qualified projects.
This provision prevents sales between "related persons" from qualifying as affordable sales for the tax credit. It defines "related persons" broadly by cross-referencing other Internal Revenue Code sections (267(b), 707(b)(1), 52) but lowers the ownership threshold from 50% to 10% for determining relatedness.
Section 3, new IRC Section 42A(h)(6)
Why it matters:This is standard legislative practice for tax credit programs to prevent fraud and ensure that the credit is used for genuine, arm's-length transactions with independent qualified homeowners, rather than internal transfers within a related business or family.
Case for: Ensures the integrity of the credit by preventing developers or individuals from selling properties to themselves or closely related entities to claim the credit without a true affordable sale to an independent party, thereby protecting taxpayer funds.
Case against: No specific opposition is typically raised against anti-abuse provisions, as they are generally accepted as necessary for program integrity. Some might argue the 10% ownership threshold is overly broad, but this is a minor concern.
Estimated impact: Prevents potentially significant revenue loss from fraudulent or non-market transactions, ensuring the credit benefits its intended recipients and maintains public trust in the program.
This provision states that if a qualified residence is converted to rental housing within five years of its affordable sale, the owner (even if not the original purchaser) will be denied deductions for expenses related to renting that residence during the period it is rented.
Section 3, new IRC Section 42A(h)(10)
Why it matters:This is an anti-abuse provision designed to reinforce the bill's primary goal of promoting owner-occupied homeownership. It prevents the credit from inadvertently subsidizing rental properties, which is outside the scope of the Neighborhood Homes Investment Act.
Case for: Reinforces the bill's core objective of fostering owner-occupied homeownership and prevents the tax credit from being exploited to create rental housing, thereby ensuring the public investment serves its intended purpose of stabilizing neighborhoods through homeownership.
Case against: No specific opposition is typically raised against this type of anti-abuse rule. Some might argue it could create a disincentive for homeowners to rent out a portion of their home (e.g., a duplex) if their circumstances change, even if it's a legitimate need, but the primary intent is to prevent full conversion to rental.
Estimated impact: Helps maintain the stock of owner-occupied affordable housing created by the credit and prevents unintended use of federal tax incentives, preserving the program's focus.
This provision mandates annual inflation adjustments for key dollar amounts within the credit (e.g., substantial rehabilitation threshold, state credit ceiling, owner-occupied rehabilitation cap) starting after 2025. These adjustments will use the cost-of-living adjustment, and the provision includes specific rounding rules for each adjusted dollar amount.
Section 3, new IRC Section 42A(h)(7)
Why it matters:It is standard legislative practice for tax code provisions to include inflation adjustments to ensure that dollar thresholds and caps maintain their real value over time, preventing erosion of the credit's effectiveness without requiring constant legislative updates. The rounding rules are necessary for precise calculation.
Case for: Ensures the credit remains effective and relevant over the long term by adjusting for inflation, preventing the real value of the credit from eroding and maintaining the incentive for developers and homeowners to participate in the program.
Case against: No specific opposition is typically raised against inflation adjustments. The complexity of the rounding rules might add a minor administrative burden for agencies calculating the adjusted amounts, but this is generally considered a necessary technical detail.
Estimated impact: Preserves the purchasing power and incentive value of the credit over the long term, impacting potentially billions in future credit allocations and ensuring the program's continued relevance.